Austal Limited (ASX: ASB) has always been a bootstrapping and innovative type of company. From its early days in Henderson, Western Australia, to the global player it has become, every step of the way has been hard fought and built on the back of past successes. Unfortunately, its value indicators have not previously told this story well.
In December 2015, Austal announced an issue stemming from a dramatic underestimate in the design of its ships for the Littoral Combat Ship (LCS) program for the US Navy. By June of 2016 this had resulted in a FY16 loss of $122 million, a 52% drop in share price, the resignation of its CEO to take a "career sabbatical" and the start of a (still ongoing) probe by ASIC.
Starting 4 April 2016, Austal appointed David Singleton as CEO and MD, a seasoned executive manager from organisations such as Poseidon Nickel, BAE and Clough Limited. Although the company's financials are interrupted by the events of 2016, the amount of black ink under the new management is inspiring.
Compounded growth in shareholders' equity is at 10% across the period from 2010, showing a recovering book value. Sales growth has been compounding at around 13% from 2010, increasing 31% year on year between FY18 and FY19.
Sales of complex, large cost assets like defence boats or ferries requires robust execution across a range of fronts. These include strong sales teams, timely and cost-effective delivery, well designed assets suited to their intended purpose and a no fuss partnership approach to after-sales service.
US President Donald Trump presenting the Australian PM with a model of one of the boats they are building for the US Navy is an unprecedented acknowledgement of quality and reliability and bodes very well for future US Defence sales.
Impressively, the Austal earnings per share (EPS) has enjoyed compound growth of 54% over the 3 years since 2017, with a net profit after tax 63.5% higher than the previous corresponding period. The company has opened new shipyards in Vietnam and Western Australia and was selected as the prime contractor for the dry docking of one of its LCS program ships. This was the first time this has happened in that market.
Austal is clearly focused on timely delivery of innovative, high quality assets and expanding its footprint further through the delivery of support services. Regardless of what may have happened in the past, clearly Austal is now in the hands of professional managers.
With an order book of $4.9 billion, a track record of timely and efficient delivery, and growth across both commercial and defence sectors, this is a company with a lot of runway in front of it.
It pays to bear in mind that ASIC is still looking into disclosures made in 2016 with related issues in and out of Australian courts at present. The company announced in January they were also working with an unidentified "US regulatory authority" on separate but related investigations.
Foolish takeaway
With a very predictable pipeline of forward revenues, strong sales and EPS growth, reliable delivery arms and growth in physical operations and service offerings, it is hard to see anything being able to seriously damage Austal's future performance.
I would buy Austal shares if they are trading below $4.00 per share.
