Shipbuilding stock Austal Ltd (ASX:ASB) has jumped +6.7% as it enjoys two tailwinds: first, that delivered by Canberra declaring the company a ‘strategic shipbuilder,’ secondly, as it increased FY25 EBIT projections to “not less than $100M.”
Canberra has on Tuesday declared Austal a shipbuilding partner with the completion of a Strategic Shipbuilding Agreement (SSA), an interesting piece of legal nomenclature borne in the era of AUKUS.
That deal sees Austal committing to create a new subsidiary alongside Canberra to create around 25 surface-floating ships in the coming decade from a site in Western Australia. Those ships are landing vessels and all in all that pipeline reflects around $20B of work.
Austal is backed by Andrew Forrest’s investment ecosystem and has in recent history been the subject of a takeover proposal from South Korea’s Hanwha – South Korea widely recognised as the only nation ex-China that can truly manufacture ships on-demand (as far as shipbuilding goes.)
As part of the SSA with Canberra, the Australian government has worked in a clause that allows it to basically claim ownership of Austal assets presumably in the face of some calamity.
But perhaps most interesting of all is that this declaration of Austal comes more or less on the same day that Australia has selected Japan to build frigates, the types of Navy ships with heavy weaponry on-board, in a deal worth A$10B.
Before that decision; the frigates deal was never even on Austal’s table. It was a decision between a Japanese company and a German company – suggesting a two-tier system of ‘strategic shipbuilding’ relationships.
Elsewhere, the company also reported it now expects FY25 EBIT to reflect “not less than $100M” after winning a tax concession related to an existing and unrelated contract with General Motor.
ASB last traded at $6.85/sh.
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