ASB - Austal Limited

[Lachlan6]

I could not find a thread on ASB so started up a new one here. I will kick it off from a technical perspective and unfortunately the picture looks a little dismal. Todays sharp fall through crucial support, will in my opinion be the continuation of bigger declines. I have marked $2.06 as a high probablity target, coinciding with the pattern (descending triangle) and previous support/resistance in '05 and '06.

A really interesting thing about this chart however, is the huge amount of negative divergence between the MACD and price, indicating that declines were inevitable. This is one of the most obvious divergences I have ever seen on a weekly chart. Great time to go short for a medium term trade in my opinion.

(For some reason, the chart will not update, however today's close was at $2.72) on a big red candle. Apologies

 

[roland]

Hi, I notice that Aegis have ASB listed on their best stock ideas for some time. Also have noticed an announcement dated 2nd November regarding loss of US navy contract - not sure of the full impact, but suspect it's not going to positive on their SP

 

[nomore4s]

Signs of a bottom?

Looks to be a sellling climax after the bad announcement at the start of Nov, with a massive vol bubble in the 10 days or so after the massive sell down on the 2.11.07. The vol halted prices around the $2.60 area and appears to have soaked up the supply at this level, after a short rally back to nearly $3.00 which brought out some more supply, prices have drifted back down to the $2.60 level but look at the volume now, it's very low - back to "normal" for this stock. Maybe indicating the people buying in the vol bubble are yet to sell?
What is it they say about smart money buying on bad news and selling on good news?

What is also of interest is the spring which dropped slightly through the previous low but rebounded nicely on relatively low vol, with the following day doing pretty much the same thing.

 

[nomore4s]

Updated ASB chart.

Price fell through support at $2.60 for what looks to be a terminal shake out. But look at the difference in volume between the the selling climax and the terminal shakeout.

The terminal shakeout has been followed by a sign of strength, the volume on the SOS doesn't look to be high but in context of the low vol of the general market over the holiday period it is probably reasonable.

Now looking for a last point of support to confirm the SOS.
The last 2 bars are putting forth a good case for a LPS with reducing vol and spread with closes well of the low of the bars.

There hasn't been a large base of accummulation but supply looks like it is drying up or has been asborbed.

For discussion only, DYOR

 

[Kelpie]

So what do people think ATM? Seems to have broken above resistance and now in an uptrend. Also back on Aegis' best stocks list (a couple of months ago).....

 

[Sunburnt Land]

Haven't seen any talk on this one for a while. A quality WA shipbuilding company. Has suffered with the rest of the market lately but appears oversold on low volumes. The sharp drop in the Aussie dollar has no doubt impacted on the share price. A strong company with a dominant position in their sector. Pays 13c dividend per share, yielding 7.5% fully franked at today's price. P/E is a very low 6.13. Constantly being awarded new government and private contracts around the world.

Think it may have slipped under the guard of investors. Views anyone?

 

[niknah]

The big US military contracts may not have a future anymore because the US will have less moneys to spend on their navy. The project was not looking very good before.
And the Hawaiian superferry didn't get a good reception for environmental reasons.

A lower AUD will help all manufacturers, but it negates the recent drop in alumimium/metal prices.

They have $250m cash, and earlier in the year there was a share buy-back. They could possibly start buying back shares again soon.
At $1.86, the market cap is $349m, so the rest of the business(excluding cash) is valued at $99m? Profit for the last 2 years was $52m, $49m.

Numbers look good, but so do a lot of things in the stock market at the moment.

 

[BrightGreenGlow]

Does anyone know much about the US Navy contracts?? I believe congress can make it possible for Austal and another company to build many billions of $$$ of new ships. If this doesn't happen the US Navy will choose one... if this is AUSTAL or the first option happens I think ASB will rally quite a fair bit..

Does anyone else know much about the Austal / US Navy contract news??

 

[So_Cynical]

I have watched this stock with a keen interest for a long time and today decided it was time to buy in @ $1.41 ~ and so ASB became portfolio stock #24

I like the business, i like how the fortunes and SP can swing wildly, some of the contracts can be enormous others not so, over the years ive watched this stock the story has just got better and bigger over time and yet the SP has fallen solidly for the last 22 months...go figure.

I know there are alot of issues with Austal, currency movements, contract wins/losses, new technology, crappy margins, US Govt spending and debt issues, world growth etc etc...but for me the ASB story is compelling.

Anyway results highlights below.

• Record revenue of $653.0 million, up 29.7%
• Order book: $2.57 billion, up 72.5%
• Earnings before interest and tax: $16.6 million
• New shipbuilding contracts totalling approximately $1.3 billion during the year
• Net assets: $277.0 million
• Philippines shipyard transformational strategy implemented

http://media.corporate-ir.net/media_files/IROL/15/159601/Annual_Results_Announcement.pdf
~

 

[herzy]

Trading below NTA? Can't complain with that, depending on the assets of course. Given such a long down trend, do you have any reason to expect a re-valuation of sp? My only issue also is small profit margin ~2.5%. 16 mill profit on 600 mill revenue. Doesn't leave much margin for error, and I assume the high AUD helps inflate earnings/revenue a bit.

 

[So_Cynical]

Trading below NTA? Can't complain with that, depending on the assets of course. Given such a long down trend, do you have any reason to expect a re-valuation of sp? My only issue also is small profit margin ~2.5%. 16 mill profit on 600 mill revenue. Doesn't leave much margin for error, and I assume the high AUD helps inflate earnings/revenue a bit.

As i said there are issues and the 16 mill profit on 600 mill revenue is a stand out issue...on the glass half full side there is considerable potential for them to increase the profit from such a large amount of revenue, on the flip side perhaps it was all they could do to just squeeze the 16 mill out. :dunno: time will tell all.

I'm guessing that if they can land additional littoral ship contracts and build em in both Alabama and the new Philippines ship yard then there would be considerable savings to be had with the Filipino operation...the Philippines is very very US friendly and the US military is very friendly with the Filipino Military and Govt.

The Filipino ship yard opens all sorts of doors to cost savings and puts Austal in the centre of the Asian ship building market, Asia = growth and money and Asia needs ferry's and all sorts of littoral type vessels...the Philippines is 4000 islands and probably has more ferry's per head of population than anywhere else on earth.

I'm betting Austal can squeeze more profit outa there operations...to put it bluntly the Alabama operation was profitable and the Aussie operation wasn't, so transfer all the non military work from Australia to the Philippines and bingo its profitable..its an incredible position that Austal finds itself in after just 15 years as an Aussie Alloy ship builder, incredible that an Aussie company built this beautiful ship.
~

 

[Ves]

Trading below NTA? Can't complain with that, depending on the assets of course. Given such a long down trend, do you have any reason to expect a re-valuation of sp? My only issue also is small profit margin ~2.5%. 16 mill profit on 600 mill revenue. Doesn't leave much margin for error, and I assume the high AUD helps inflate earnings/revenue a bit.

The capital structure is a mess. They're clearly bleeding cash and funding operations from debt. I don't think NTA is relevant in this case, because it is likely that most of those assets only have limited use in other businesses (ie. they will not recover close to a $1 of cost on the balance sheet for a $1 in a fire sale). I wouldn't be surprised if they had to raise capital soon.

If you take out the property revaluation in the 2012 Financial Accounts they actually made a loss.

There does not look to be much buying interest in this stock, and probably for very good reason! The return on invested assets over the last few years would have been better off in the bank...

 

[So_Cynical]

The capital structure is a mess. They're clearly bleeding cash and funding operations from debt. I don't think NTA is relevant in this case, because it is likely that most of those assets only have limited use in other businesses (ie. they will not recover close to a $1 of cost on the balance sheet for a $1 in a fire sale). I wouldn't be surprised if they had to raise capital soon.

If you take out the property revaluation in the 2012 Financial Accounts they actually made a loss.

There does not look to be much buying interest in this stock, and probably for very good reason! The return on invested assets over the last few years would have been better off in the bank...

Big picture Ves..13 years ago Austal was building 5 or 6 boats per year in Fremantle, fishing boats, small ferry's and high end pleasure boats..now they build super ships for the US Navy and work with company's like General Dynamics and Northrop Grumman.

Austal has come along way...any big specialist builder like Austal is always going to have issues with capital and expenditure and profitability, these issues will come and go over time and contracts...its the nature of the business.

Now having said all that there is no way i would be adding ASB to my portfolio unless i already had a very large and diverse portfolio, there is some single stock risk to ASB that's for sure and who knows when the SP will stop falling? i certainly don't...but i do get it right 80% of the time given a 6 months time frame.

http://www.facebook.com/Austal

 

[Ves]

I'm talking big picture as in the next 10 years, as I don't hold short-term or medium term positions (unless my original investment thesis is contradicted, in which case I sell).

They make many more boats and ships than they once did, but how many assets did they need to put on the balance sheet to get this far? What return are they getting on these? Are their margins and returns any better than they used to be?

 

[Ves]

I wouldn't be surprised if they had to raise capital soon.

And here we are. Thoughts, SC?

 

[So_Cynical]

And here we are. Thoughts, SC?

Well first up...someone couldn't keep a secret....the SP was tanking on the day of the Halt announcement, i get the feeling they were forced to ask for a halt due the the sudden SP slide.

Obviously i entered to early again (i do have a habit of doing that) but if offered, i will participate in the cap raising and if the opportunity arises ill buy a few more on market to bring my average price down...as always im in for the long haul.

I don't buy unless im willing to hold.

 

[So_Cynical]

OMG - an over the top capital raising...eeek

Accelerated pro-rata non-renounceable entitlement offer.

• 9 new shares for every 10 held.
• Issue price 50c
• Raising 86 million.
• Entitlement is not tradable.
• Funds to be used for debt reduction and working capital.

http://austaloffer.reachis.com/PDF/ASB Capital raising Investor Presentation.pdf

I will be taking up my entitlement and applying for a few extra....not happy about it because its not a good look to be issuing so many shares at such a deep discount..not a good look at all.

 

[Ves]

I will be taking up my entitlement and applying for a few extra....not happy about it because its not a good look to be issuing so many shares at such a deep discount..not a good look at all.

Perhaps they are in more trouble than it first appeared.

That's major dilution. I have heard the shipping industry is struggling. So it is no surprise they had to raise funds to pay debt in that respect.

I didn't realise you actually held - I thought you would be watching though.

 

[McLovin]

Woah! 9 for 10. That's not a cap raising that's a recapitalisation. Why do they pay so little in interest? The numbers don't add up.

I actually owned some of these wayyy back in 1999. I did sell at a profit, not sure what that profit was though.

 

[skc]

Looks like the bankers got a bit nervous with respect to their US navy / fiscal cliff exposure?

I have no idea how to determine the risk/reward of a position taking this into account.

It's a shame because Asutal is one fo the few Australian company that has unique and world class IP. But the application of this IP has not be rewarding for shareholders in the last few years.