Austal flat WoW as new $4B defence contract erases counting error losses

Austal (ASX:ASB) has shrugged off the impact of last week’s sell-off, spurred by the Australian company’s discovery it had been counting on tens of millions of dollars that didn’t exist, given they’d counted it twice.

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The catalyst for that market forgiveness came in the form of a new Oz defence contract revealed on Friday that reaffirms the company’s position as a (somewhat recently declared) “strategic shipbuilder” status.

The contract, valued at A$4 billion, tasks Austal with building eight landing craft heavy vessels as part of that strategic designation from Canberra.

Those vessels are amphibious and basically allow a ship to ground itself on-shore so that military vehicles kept on-board can then make their way onto the land of whatever shore the ship is on. That can look like exiting through an opening in the hull or being moved onshore by crane.

In other words, it’s a ship that allows an army to invade another country and quickly get tanks and trucks rolling out on enemy turf. The ships will be able to transport 200 soldiers, six tanks, or nine Redback infantry fighting vehicles made by Hanwha, which, for all intents and purposes, are also more or less tanks.

So the LCH ships are really a fairly crucial asset class for a defence force and evidence of the ongoing global remilitarisation thematic.

At the same time, it’s going to take twelve years – construction of the first vessel will kick off this year, but the final vessel won’t be delivered until CY38.

“While Austal’s U.S. business has traditionally accounted for a large share of our defence order book in recent years, this contract reflects the growing strength and success of Austal’s Australian operations,” CEO Paddy Gregg wrote Friday. “It also provides earnings and employment stability for the next 12 years.”

ASB last traded at $6.33/sh today.

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