Stock of the day: Austal Limited
Australian shipbuilder Austal secures a $670 million contract, enhancing U.S. Navy capabilities and expanding operations in Alabama.
(AI video summary)
This video was created on 16 September for IG audiences by ausbiz.
Stock of the day: Austal
ASX code: ASB
Major contract win leads to financial uplift
Austal, a prominent defence contractor, has won a $670 million contract from American General Dynamics Electric Boat Group. This deal underscores Austal's strong presence in the defence sector and is poised to significantly enhance its production capabilities.
Following this new contract, Austal is set to expand its production capacity in the US at its Mobile, Alabama site. The expansion includes a new shipbuilding components facility, slated for completion by 2026. This facility will help achieve the US Navy's ambitious goal of constructing two new submarines each year.
The announcement led to a 7.5% surge in Austal's share price, reflecting the market's positive reaction to the company’s expanding influence in US defence logistics.
Historical context
Starting in Perth, Austal has evolved from building multi-hull aluminium and steel ferries to becoming a significant player in defence contracting. The company’s US facilities have been pivotal in aligning closely with defence spending patterns, particularly highlighted by its recent contract wins.
Pipeline of projects and profitability concerns
Austal currently boasts a promising project pipeline valued at approximately $12.6 billion. These projects are crucial not only for revenue but also for reinforcing the company's strategic position in global defence supply chains.
Despite the positive outlook, Austal faces challenges in delivering these large-scale projects profitably. The company has historically struggled with profitability, but the latest contract is seen as a positive development towards stabilising its financial standing.
Global presence and future prospects
Austal has delivered 350 vessels across 59 countries and is poised to benefit significantly from the AUKUS agreement. With ongoing negotiations to become the shipbuilder of choice for Australia, Austal’s strategic importance continues to ascend.
The market remains cautiously optimistic about Austal's ability to capitalise on increased global defence spending while maintaining profitability. With a current price-to-earnings (P/E) ratio of 55 times, and a turnaround from previous financial losses, the company is focused on enhancing profitability through strategic investments and efficient project delivery.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Explore the markets with our free course
Discover and learn how the range of markets you can trade on with IG Academy's online course – ‘Introducing the financial markets’.
Put learning into action
Try out what you’ve learned in this shares strategy article risk-free in your demo account.
Ready to trade shares?
Put the lessons in this article to use in a live account – upgrading is quick and easy.
- Trade on over 10,000 popular global stocks
- Protect your capital with risk management tools
- React to breaking news with out-of-hours trading on 70 key US stocks
Inspired to trade?
Put your new knowledge into practice. Log in to your account now.
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.
