The Austal Limited (ASX: ASB) share price is up 2.85% to $3.25 this morning after the Australian shipbuilder announced a new acquisition. Today's Austal share price movement compares to the S&P/ASX 200 Index (ASX: XJO) which is also up 0.5% to 5,891 points at the time of writing.
Let's take a look at Austal's new purchase.
What's the deal?
Austal has purchased Modern American Recycling and Repair Services of Alabama assets. The new acquisition, from former owner World Marine of Alabama, includes a 20,000 ton 'Pete B' Panamax-class floating dry dock, 100,000 square feet of covered repair facilities and 15 acres of waterfront property along the Mobile River.
The purchase boosts Austal's new construction and service strategy by securing launch and deep-water berthing capability to support future construction efforts. This will aid building new steel ships and increasing service and repair capacity.
The acquisition of the assets is less than $10 million and will be funded by the company's cash holdings. As at 30 June 2020, Austal cash on hand balance was at $272.4 million.
About Austal's USA division
Austal USA is one of the largest shipbuilders in the United States, along with General Dynamics and Huntington Ingalls. Austal's headquarters and manufacturing facility is located on 164 acres of land along the Mobile River.
Austal's investment into its US operations seeks to increase the value of the target project by three-fold. It is estimated that new shipbuilding projects will be around $2 billion per year from 2022.
Is the Austal share price too cheap to ignore?
The Austal share price has fallen 14% since the start of the year, but recovered 42% since its March lows of $2.25. While the company is steering ahead in the right direction, I think it would be best to wait to see how Austal tracks with its shipbuilding projects. COVID-19 has already affected its commercial ferry market. As constructing new warships takes considerable manpower, I would be cautious in the changing climate.
