Shares of ASX-listed ship building company, Austal Limited (ASX: ASB), ended the day largely flat at $1.59 despite announcing a huge half-year profit increase this morning.
In the six months to 31 December 2014, Austal reported revenue of $680.2 million, up 34% on the prior period, and a 208% jump in net profit to $28.9 million.
Enhanced by a revaluation of inter-company loans, Austal also reported strong cash flow from operations of $118 million, up 170% on the prior corresponding period. This strong cash flow enabled the company to repay $38.4 million in infrastructure related debt and achieve a net cash position of $15.6 million. At 31 December 2014, gross debt stood at $US114 million, down from $US154 million a year earlier.
However Austal said it does not expect to consistently maintain a net cash position due to timing differences between progress payments on vessel contracts and cash costs of construction.
Thanks to efficiencies in construction, the group was able to achieve a much wider earnings before interest and tax (EBIT) margin of 6.6%, compared to 3.6% a year earlier. Earnings per share jumped to 8.5 cents, from 2.7 cents, and enabled Austal's board to declare a dividend of 1 cent per share – its first since August 2011.
Commenting on the results Austal CEO Andrew Bellamy said, "We have put a lot of effort into driving efficiencies at the Australian business and it is great to see that translate into enhanced earnings for the company."
He added, "Austal has always had long-term visibility of revenue from our major defence contracts but the key has been ensuring we deliver the best operational outcomes from those contracts to improve margins."
Despite already boasting an order book of $2.6 billion and cost competitiveness derived from a falling Australian dollar, Austal aims to continue growing its pipeline of work in the second half of the year.
"While margins are always a core focus, a key priority is to expand our $2.6 billion order book, pushing our pipeline of work beyond CY2018 to grow Austal further," Mr Bellamy said.
For the 2015 financial year, the company intends to reach revenue guidance of $1.2 billion, further reduce its infrastructure-related debt and extend the maturity of its debt profile through refinancing the Letters of Credit.
Should you buy Austal shares?
Austal is a unique business and boasts a number of characteristics (high barriers to entry, long-term contracts etc.) that may appeal to long-term investors. However it must also win contracts and focus heavily on margins to be successful.
It has a price-earnings ratio of 12 – compared to the broader market's P/E of 16.4.
