The Austal Limited (ASX: ASB) share price has surged 9.52% today after the shipbuilder announced a US$50 million agreement with the US Government. The US Department of Defense has entered into an agreement with Austal to maintain and protect its domestic shipbuilding and maintenance capacity.
What does Austal do?
Austal is a shipbuilder that designs, constructs, and supports defence and commercial vessels. The company produces high speed passenger ferries and passenger-vehicle ferries, as well as frigates, high speed military transport vessels and patrol boats. Austal operates from shipyards across the US, Western Australia, Vietnam, and the Philippines.
What does the new agreement mean?
The new agreement is part of the US Government’s national response to COVID-19 and aims to protect and expand critical domestic shipbuilding capacity. Austal intends to use the funds to invest in the development of additional capacity for steel naval vessel construction at its shipyard in Mobile, Alabama.
Austal says it is likely to match the US$50 million investment, bringing the total investment to around US$100 million. The company reports that this should benefit US Navy shipbuilding and accelerate pandemic recovery efforts in the Gulf Coast region.
How has Austal been performing?
The Austal share price was crunched in the March correction, falling 47% to $2.31 at its lowest. Since then the Austal share price has regained much of this ground, with shares currently trading at $3.68. The Austal share price was also boosted by upgraded guidance last month along with a US$43 million contract modification last week.
In May, Austal increased its FY20 earnings guidance to group revenue of approximately $2 billion and group earnings before interest and tax of no less than $125 million (up from $110 million). The upgraded guidance was issued as a result of COVID-19 having a more limited impact on performance than anticipated, along with the sustained strength of the US dollar, and the award of a new vessel construction contract announced in May.
Commenting on the upgraded guidance, Austal CEO David Singleton said: “Austal’s continued strong performance across our shipyards in the USA, Australia, Philippines, and Vietnam during the COVID-19 pandemic has provided confidence to increase the Company’s FY2020 earnings guidance.”
In 1H FY20, Austal reported a 22% increase in revenue which reached $1.04 billion. The shipbuilder made a net profit after tax of $40.8 million, up 72% on the prior corresponding period. Austal finished the half with net cash of $152.4 million.
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Motley Fool contributor Kate O’Brien has no position in any of the shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.
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