Austal Limited

ASB Details

Overvalued at the Current Juncture: Austal Limited (ASX: ASB) is a ship manufacturing company, which has a presence across 54 countries, headquartered in Australia. The business segments of the company have been classified into three segments viz. Australia, the USA, and Asia. The ‘Australia’ segment manufactures high-end vessels (both commercial and defence). This segment exports vessels to most of the nations, except the US. The segment is also responsible for vessel-related guidance and training for its clients. The ‘US’ segment manufactures high-end defence vessels (aluminium based) for the US Navy and provides required support to them. Whereas, the ‘Asia’ segment manufactures high performance aluminium commercial vessels for global markets excluding the U.S. On the geographical front, majority of the revenue comes from the US, which is ~84%, followed by 8% from Australia and 7% from Europe. Asia and Middle east together contribute less than 3%. ASB has an order book worth $5.2 billion, which is likely to be continued till the end of 2020.

Recently, the company announced that the Annual General Meeting of the company will be held on Friday, 1 November 2019 for the purpose of transacting the business. Various agendas, including operating and financial overview, would be discussed.Recently, the company advised that ordinary shares will be priced at $4.19 per share for the FY19 final dividend under the company’s Dividend Reinvestment Plan. In another update, a release stated thatthe voting power of Mitsubishi UFJ Financial Group, Inc. increased from 5.11% to 6.12% with effect from 17 September 2019.

Financial Performance:During the year ended June 30, 2019, revenue of the company stood at $1.85 billion. The operating revenue was underpinned by the strength of USA new vessel orders, expansion of commercial shipbuilding, revenue growth in the US, and favourable impact of foreign exchange. The company’s closing cash happens to be in a robust position. The higher net cash was partially driven by the working capital cycle. A 46% YoY rise was observed in EBIT and the figure stood at $92.8 million. The company also announced the fully paid ordinary dividend of A$0.03 per share, which is to be paid on 15 October 2019. The total dividend stood at 6 cents per share, up by 20% in FY19.


Financial Snapshot (Source: Company Reports)

Operational Highlights: During the year, business in the USA performed ahead of expectations as shipbuilding margin was increased from 7.4% to 7.9%, and 3 vessels were delivered during the year.Commercial Ferry market is expected to remain strong as there are new orders for $166 million.

Outlook:The company is planning to expand its business in the USA through participation in new USN programs and the business priorities of FY20 are to build world’s best ships through a major expansion of R&D investment. The company also wants to ensure the group wide cost efficiency and drive Asia investment to enhance competitiveness. In the financial year 2020, the group revenue and EBIT of the company shall not go below $1.9 billion and $105 million, respectively, and EBIT Margin (US Shipbuilding) should be in the range of 7.5-8.5%.

Stock Recommendation: At the current market price of $4.130, the market capitalisation of the company stands ~$1.46 billion with an annual dividend yield of 1.47%. The stock is currently trading towards its 52-week high price of $4.630 and has gained 116.58% and 26.02% in the last 1-year and 3 months, respectively. On the valuation front, the stock is available at a price to earnings multiple of 23.24x as compared to the industry median of 11.9x. EV/EBITDA multiple at 9.7x on TTM basis is also above the industry median of 6.9x, indicating that the stock is trading at the premium as compared to its peer group.Considering the movement in the stock price in the short-term along with the valuations, we presume that most of the positives are factored in at the current level and advice the investors to liquidate their holdings and book the profits. Hence, we give a “Sell” recommendation on the stock at the current market price of A$4.130 per share (up 0.978% on 4 October 2019).
 
 
ASB Daily Technical Chart (Source: Thomson Reuters)

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