Austal Limited 

ASB Details

United States Navy Awarded Construction Contract: Austal Limited (ASX: ASB) deals in the Aerospace & Defense industry that designs, manufactures vehicle passenger ferries, windfarm vessels and provides crew training, instructions, vessel servicing, repair, and maintenance to government and defence customers globally. On 6 October 2021, Austal USA awarded its first steel vessel construction contract by the United States Navy. Under the contract, Austal USA will build two Towing, Salvage, and Rescue ships (T-ATS 11 and 12).

FY21 Financial Performance:

• The company has recorded a decline in its revenue by 25% to $1,572.2 million in FY21, compared to $2,086.0 million in FY20, driven by negative FX impact and Lower LCS material throughput.
• In FY21, it has reported a strong performance in EBIT in the US segment of $7 million vs $123.7 million on a pcp basis, reflecting improvement in Shipbuilding margin by 8.1% and government funding approvals.
• Despite the unfavourable impact of the COVID-19 pandemic, it has incurred a profit of $81.05 million in FY21 against $88.97 million in FY20.
• The company has declared an unfranked final dividend of 4.0 cents per share, and the payment date is 21 October 2021.
• The company’s cash position of the company stood at $346.8 million as of 30 June 2021 vs $396.6 million as of 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has faced challenges in the volumes and timing of work due to lockdown restrictions, and still, the uncertainty prevails.
• Foreign Currency Risk- The company is exposed to currency risk, which impacts the sales, purchase, and other construction components.

Outlook:

• The company is investing in USA shipbuilding, and 50% is being funded by the government, which is up to US$50 million to facilitate the construction of steel shipbuilding. Further, it will commence the construction by May 2022.
• The management is uncertain about the future due to dynamic COVID-19 pandemic and the broader macroeconomic impacts on the business in FY22.
• The company guided its FY22 revenue of ~ $1.5 billion (inclusive EPF 15 revenue). In addition, it has achieved an order book of $2.5 billion, running through until FY2025, which is reduced from FY20 as LCS and EPF programmes reach maturity.

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

Source: 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: The stock of ASB is trading below its average 52-weeks' levels of $1.610-$3.430. The stock of ASB gave a positive return of ~11.86% in the past one month and a negative return of ~25.19% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount to its peers, considering the uncertainty of the COVID-19 pandemic, increase in prices of components, lockdown restrictions and a lower quick ratio. For the purpose of valuation, peers such as Quickstep Holdings Ltd (ASX: QHL), Monadelphous Group Ltd (ASX: MND), NRW Holdings Ltd (ASX: NWH) and others have been considered. Considering the current trading levels, indicative upside in valuation, strong performance in the US shipbuilding, decent topline growth despite COVID-19 pandemic, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.880, up by ~0.266% as on 15 October 2021.

ASB Daily Technical Chart, Data Source: REFINITIV 

AMA Group Limited

AMA Details

Completed Retail Entitlement Offer: AMA Group Limited (ASX: AMA) engages in the vehicle aftercare market that offers motor vehicle panel repair services, commercial accessories, distribute automotive electricals in Australia and New Zealand. On 7 October 2021, AMA completed its Retail Entitlement Offer and issued shares which has resulted in dilution of Thorney Opportunities Ltd’s holding in AMA. Under the offer, AMA raised gross proceeds of approximately $47 million at the offer price of $0.375 per share. Recently, Mittleman Investment Management, LLC, a substantial shareholder of the company, reduced its holding from 12.88% to 11.59%.

FY21 Financial Performance:

• The group has recorded an improved revenue and other income from continuing operations to $919.9 million in FY21, compared to $825.4 million in FY20, largely due to the benefit of full twelve-month trading for acquisitions such as Capital S.M.A.R.T and ACM Parts.
• In FY21, it has posted a EBIT loss of $83.45 million, an increase from a loss of $48.78 million on a pcp basis, impacted due to a rise in impairment expense, Supplier termination fee during the year.
• In addition, it incurred a net loss of $99.07 million in FY21 against a loss of $71.46 million in FY20. This is due to current economic disruption on its operations that has impacted repair volumes and supply chain inputs.
• The net debt stood at ~$173.2 million after deducting cash, and the cash equivalent came in at $64.2 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 Pandemic- The company has a significant impact on its operation due to reduced repair volumes, border closures and snap lockdowns during the COVID-19 pandemic.
• Liquidity Risk- The company is exposed to liquidity risk as it requires to meet its financial obligations, operational activity and staffing and mitigate the working capital risks.

Outlook: The company is looking forward to acquiring growth opportunities in a rapidly changing market with an aim to reduce costs and expand margin. It continues to capitalise on industry technology advancements, secure supply consistency to drive growth in the near-term future.

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

Source: 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:

The stock of AMA is trading below its average 52-weeks' levels of $0.383-$0.870. The stock of AMA gave a positive return of ~1.08% in the past one week and a negative return of ~36.20% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the lockdown restrictions, increased parts prices and a negative net margin. For the purpose of valuation, peers such as Mader Group Ltd (ASX: MAD), Autosports Group Ltd (ASX: ASG), Vmoto Ltd (ASX: VMT) and others have been considered. Considering the current trading levels, indicative upside in valuation, improved topline growth, strategic acquisition, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.460, down ~1.076% as on 15 October 2021.

AMA 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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