Austral lands $1 billion defence deal. So why are its shares barely moving?

The Austral Ltd (ASX: ASB) share price is edging higher on Thursday despite the scale of today’s announcement.

At the time of writing, the shipbuilder’s shares are swapping hands for $6.10, up 2.69%. In comparison, the S&P/ASX 200 Industrials Index (ASX: XNJ) is down 0.66% due to a broader market sell-off.

A billion-dollar landing craft contract

According to the release, Austral announced it has been awarded a $1.029 billion design and build defence contract through its subsidiary, Austral Defence Australia.

The contract covers the design and construction of 18 Landing Craft Medium (LCM) vessels for the Australian Army under the Commonwealth’s Strategic Shipbuilding Agreement.

The vessels will be built at Austral’s Henderson shipyard in Western Australia. Construction of the first LCM is expected to commence in 2026, with the final vessel scheduled for delivery in 2032.

Each steel vessel will be capable of transporting loads of up to 80 tonnes, supporting the Army’s amphibious and logistics operations.

Management noted this is the first design and build contract awarded under the Strategic Shipbuilding Agreement, marking a key milestone for the Henderson shipyard.

Why has the share price response been limited?

The answer likely comes down to timing.

While the headline contract value is substantial, revenue will be recognised progressively over several years. As a result, today’s announcement doesn’t materially change any near-term earnings expectations.

For investors looking at the next one or two earnings results, there’s little here to force the market to re-price Austral shares straight away.

Why it still matters

Looking at the bigger picture, this is an important win for Austral.

The contract strengthens its domestic defence footprint and reinforces its role in Australia’s long-term shipbuilding strategy. It also supports the government’s push for continuous naval construction at Henderson.

Furthermore, it reinforces a broader theme playing out across the sector. Defence spending is rising, programs are getting longer, and governments are leaning more heavily on proven local operators. For companies already part of that system, securing one long-term contract can make it easier to secure the next.

Austral already works across US Navy programs and international defence customers. Adding a multi-year Australian Army contract adds visibility and further diversifies the order book.

Foolish bottom line

This isn’t a near-term earnings upgrade, which explains why the Austral share price has barely moved.

Still, locking in a $1 billion defence program out to 2032 deepens Australia’s backlog and improves long-term visibility in the defence sector.

For patient investors, this is the kind of update that quietly strengthens the investment case, even if the market reaction is limited.

The post Austral lands $1 billion defence deal. So why are its shares barely moving? appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today
• Why Austal, Fenix Resources, Metcash, and Polynovo shares are falling today
• Austal shares fall after Treasurer greenlights higher Hanwha stake
• Austal shares paused pending further announcement

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.