Will the rising tide in sales continue to lift the Austal share price?

Here's why Austal Limited (ASX: ASB) remains a good investment opportunity despite a 102% rise in its share price since January 2019.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Motley Fool contributor Daryl Mather owns shares of Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »