Austal Limited

ASB Details

Managerial Changes: Austal Limited (ASX: ASB) is engaged in the support, design, and manufacture of its high-performance vessels to defence customers worldwide. ASB declared the appointment of Rusty Murdaugh as the President of Austal USA, effectively from 9 September 2021.

FY21 Financial Takeaways:

• Fall in Total Revenue: The company reported a 24.6% YoY decline in total revenue to $1,572.17 million in FY21 due to less supportive forex conversion, reduced LCS (Littoral Combat Ship) shipbuilding throughput, lesser US support activities and COVID-19 impact.
• New Contract Wins: ASB obtained $202.15 million of new contracts in FY21, bringing the order book to $2.5 billion as of 30 June 2021.
• Record Ship Deliveries: ASB also reported the highest number of ship deliveries in FY21 taking 19 ships to defence and commercial customers, the highest in the past 33 years of shipbuilding.
• Final Dividend: The management declared 4 cents per share (cps) of the final dividend, taking the total dividend for FY21 to 8.0 cps (unfranked).
• Liquidity Balance: ASB held $346.899 million as of 30 June 2021.

 Total Revenue & Net Income Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: ASB faces the impact of COVID-19, causing delays in contracted work and lowering the volume. The forex headwinds continue to pose risks as the firm operates globally.

Outlook:

• ASB expects a tough commercial ferry market in the next few years and an impact on its Vietnam operations, initially.
• Austal is increasing investment in the USA shipbuilding and undertaking the construction of steel shipbuilding facilities in Mobile. ASB plans to begin the construction of its first steel vessel by May 2022.
• The company will focus on securing new work for its Mobile, Alabama, yard after the delivering the last LCS in FY25.

Stock Recommendation: The stock of ASB gave a negative return of 17.22% in the past three months and a negative return of 26.06% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.670 - $3.545. On a TTM basis, the stock of ASB is trading at an EV/Sales value multiple of 0.3x, lower than the industry (Industrials) median of 2.1x, and thus seems undervalued. Considering the current trading levels, new contract wins in FY21, decent balance sheet, order book pipeline for FY22, valuation on TTM basis, and associated risks of COVID-19, forex changes, supply chain disruptions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.690 as on 16 September 2021, 10.30 AM, (GMT+10), Sydney, Eastern Australia. Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks in regulatory changes, supply risk and pandemic impact on contracts and operations. 

ASB 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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