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What you need to know about Austal’s $136m contract win

A $100 million plus contract doesn’t take you as far as it used to. The Austal Limited (ASX: ASB) share price gave up morning gains even after the shipbuilder announced that it’s been awarded a large ferry contract.

The Austal share price fell 0.9% to $4.03 in after lunch trade after hitting an intraday high of $4.14 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index rallied 0.7%.

The company said Molslinjen of Denmark will pay €83.65 million (~A$136million) to Austal to design and build a 115-metre high-speed catamaran, which will be the largest ferry ever built by the ASX-listed entity.

This isn’t the first contract Austal has won from Danish ferry company. Austal delivered a 109-metre vessel in January this year.

Details of the new contract win

Construction of the new catamaran will begin in the third quarter of 2020 at its Philippines shipyard, with delivery expected by the first quarter of 2022.

The ferry will have the capacity to carry 1,610 passengers along with 450 cars and can reach speeds close to 37 knots thanks to a new generation of medium speed engines that are liquified natural gas (LNG) compatible. This means the catamaran can be upgraded to LNG fuel in the future.

“With this new order, Austal has once again demonstrated a clear capability to offer the best, most advanced high-speed ferries, cost competitively, reliably and to the highest quality,” said Austal Chief Executive Officer David Singleton.

“To be designed in Henderson over a 12 -month period and then built at our state-of-the-art shipbuilding facility in Balamban in the Philippines, the catamaran will feature Austal’s signature raked-bow and optimised hull form, and an LNG-capable medium-speed power plant that offers a powerful, yet economical and environmentally-friendly solution.”

Full steam ahead

Shareholders wouldn’t be too alarmed by the dip in the share price given that the stock is still sitting on gains of nearly 140% over the past year – making it one of the best performing stocks on the ASX 200.

It’s only beaten by the likes of the Polynovo Ltd (ASX: PNV) share price, the Pro Medicus Limited (ASX: PME) share price and the Jumbo Interactive Ltd (ASX: JIN) share price.

It’s easy to see why Austal floats investors’ boats. Austal is a growth stock with reasonably defensive earnings as a lot of its business comes from the construction of military vessels for US Navy. The stock not only provides good offshore exposure but it’s also leveraged to the weakening Australian dollar.

There aren’t many top 200 stocks with similar characteristics.

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Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited and Pro Medicus Ltd. The Motley Fool Australia has recommended Jumbo Interactive Limited and Pro Medicus Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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