Austal Limited

ASB Details

Purchased Long-term Lease of the Marine Group Boat Works Facilities: Austal Limited (ASX: ASB) is Australia’s leading defence exporter and global shipbuilder with industry-leading shipyards in Australia, the United States of America, Philippines and Vietnam. On 16 December 2021, ASB announced that Austal USA has expanded its ship maintenance and repair capabilities by completing the purchase of a long-term lease of the Marine Group Boat Works facilities in the Port of San Diego, USA. This purchase will help the company in winning new maintenance contracts from the Navy, Coast Guard, and Military Sealift Command.

Completed Sale of Stake Aulong Joint Venture: On 8 December 2021, ASB completed the sale of its 40% shareholding in Aulong Shipbuilding Co. Ltd, Austal’s Joint Venture in Zhuhai, China, for approximately AU$4.2 million.

2021 AGM Highlights: On 11 November 2021, ASB held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that despite the global disruption and economic uncertainty due to the COVID-19 pandemic, ASB delivered a record number of ships in FY21, with 19 ships delivered to commercial and defense customers around the world. Some of the other points highlighted at AGM are as follows:

• FY21 Results Update: For FY21, ASB reported total revenue of $1,572 million, down by 25% on the previous year. Further, the company reported earnings before interest and tax (EBIT) of $114.7 million, net profit after tax of $81.1 million.
• Dividend Update: ASB has paid a final unfranked dividend of 4.0 cents per share, taking the total dividend for FY21 to 8 cents per share.
• Acquisitions Update: During the year, the company completed the acquisition of BSE Maritime in Queensland, Australia and the acquisition of the MARRS shipyard assets in Mobile, Alabama.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The COVID-19 related border closures and travel restrictions could delay the company’s programs and impact its shipbuilding operations in Australia and the Philippines.
• Foreign Currency Risk: The company is also exposed to the risks related to the fluctuations in foreign currency exchange rates, as it could impact its financials.

Outlook: ASB is of the view that it has the capability to deliver steel & aluminium shipbuilding and sustainment in commercial & defence sectors. The recent purchase of a west coast yard capability is expected to grow the company’s revenue and will enhance its operational flexibility.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has been corrected by ~10.76% and is trading lower than the average 52-week price level band of $1.61 - $2.74. The stock has been valued using P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the uncertainties surrounding the COVID-19 pandemic and volatility in foreign currency exchange rates. For the valuation, peers such as Electro Optic Systems Holdings Ltd (ASX: EOS), PTB Group Ltd (ASX: PTB), and Quickstep Holdings Ltd (ASX: QHL) have been considered. Considering the expected benefit from the recent purchase of a west coast yard capability, benefits expected from the acquisition of BSE Maritime in Queensland and the acquisition of the MARRS shipyard assets, modest long-term outlook, current trading level, indicative upside in valuation, and key risks associated with business, we give a “Speculative Buy” rating on the stock at the closing price of $1.865, as on 20 December 2021, 1:10 PM (GMT+10), Sydney, Eastern Australia).

ASB Daily Technical Chart, Data Source: REFINITIV 

BSA Limited

BSA Details

Change of Director’s Interest: BSA Limited (ASX BSA) is a technical service contracting company that has two operating divisions - BSA Communications & Utility Infrastructure (CUI), and BSA Advanced Property Solutions (APS). On 3 December 2021, one of the company’s Directors, Brendan York, acquired 647,665 shares for a consideration of $0.285 per share via on-market trade.

Change in Substantial Holding: On 29 November 2021, NAOS substantial holders increased their holding in the company from 33.01% to 34.10%.

2021 AGM Highlights: On 16 November 2021, BSA held its 2021 Annual General Meeting (AGM), wherein, the management informed that during FY21, the company secured very significant contracts, which will set the platform for the next 5 years. Some of the other key points mentioned at the AGM are as follows:

• FY21 Result Update: For FY21, the company reported revenue of $422.5 million, down by 13.2% on the previous year. Underlying EBITDA for FY21 stood at $23.1 million, down by 10.8% on the previous year. Notably, revenue & Underlying EBITDA were in line with the guidance supported by strong operating cash conversion.
• Trading Update: Due to COVID-19 restrictions, the company’s volumes and profitability in both BSA Communications & Utility Infrastructure (CUI), and BSA Advanced Property Solutions (APS)

divisions have been impacted.

• Strategic Focus: BSA is focused on identifying suitable acquisition opportunities for CUI and APS divisions to drive profitable inorganic growth.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to disruptions to business activities caused by the COVID-19 pandemic. The company might witness reduced trading volumes due to constantly changing protocols and stay-at-home orders.

Outlook: The company expects a strong increase in demand for its services in FY22 as confidence returns to the economy, client spend patterns return to normal, and the backlog of delayed upgrade works comes to market. The company expects its revenue to reach to $750 million by FY24.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has been corrected by 19.39%. The stock has recently reached its 52-week price low price of $0.23. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at some discount to its peers’ average, considering the decline in FY21 results and uncertainties surrounding the COVID-19 pandemic. For valuation, few peers like Downer EDI Ltd (ASX: DOW), NRW Holdings Ltd (ASX: NWH), Millennium Services Group Ltd (ASX: MIL) have been considered. Considering the expected increase in demand for the company’s services in FY22, decent long-term outlook, current trading level, indicative upside in valuation and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.23 as on 20 December 2021.

BSA Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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