Why Austal is a value packed share, page-85

To provide some context, ASB’s order book as of June 30th 2020 was 4.3bnA$, of which 1.8bnA$ to be converted into revenue in FY21 (see October 28th earnings guidance); that leaves ~2.5bnA$ (slightly less, at today’s A$/US$ exchange rate) of contracted revenue to be converted during FY22-FY23, with a likely weighting of 75/25 or thereabout over the two financial years.

The vast majority of this shipbuilding revenue is going to originate from the US, where there is currently a total of eight ships either under construction (LCS28, LCS30, LCS32, LCS34, EPF13) or under contract (LCS36, LCS38, EPF14), as per the December 7th announcement.

In addition to that there is the revenue from Support, currently running at ~360mA$ pa (plus the new revenue from the recent BSE Maritime Solutions acquisition), but bound to increase in line with the number of new ships delivered, thus probably close to 500mA$ by the time the current order book is depleted.

Therefore, even in the worst-case scenario of no new shipbuilding orders, it will only be towards the second half of FY23 that ASB will have to start downsizing their operations in a meaningful way.

By then, though, the Company will have generated (before factoring in any dividend payouts) an extra ~300mA$ of cumulative Free Cash Flow, in addition to the current ~245mA$ in Net Cash (~273mA$ as of June 30th minus ~28mA$ for BSE MS); plus, there will be a Support business generating highly predictable revenue to the tune of ~500mA$ pa (purely based on the existing ships under Support and Maintenance services, and on those that will be delivered under the existing order book).

So, at a current Market Cap of less than 1bnA$, it would appear to me that such worst-case scenario is pretty much what the market is already pricing in; therefore, I personally see very little downside here, for a buyer at today’s price and with a 2-3yr investment horizon.