From a fundamental standpoint, Austal Ltd is strong, with projections for sustained growth over the next 10 years writes Wealth Within chief analyst Dale Gillham.
In late February, the government announced it planned to increase the Navy’s warships from 11 to 26 by 2040, which means an increase of $11.1 billion for Defence funding in the 24/25 Federal Budget. While we can debate the pros and cons of this regarding national security, I would rather look at whether this presents an opportunity for Australian companies.
The government's announcement that Australia's naval capacity will be increased presents an opportunity for our largest shipbuilding company, Austal Ltd. So, the question remains: is now a good time to buy this stock?
Before we consider that, let’s take a brief look at the decision by the government to downsize the navy. While it's great that we are looking to secure our borders, what’s most concerning is that Australia's Navy is expected to reduce in size before these new warships are even built. Given the global tension among countries is at alarmingly high levels and there are growing concerns about China, there couldn't be a worse time to decrease Australia's naval defence.
But defence is not my area of expertise, so let’s leave the politics for another day and shift gears to discuss Austal which I believe stands to benefit most from the recent government announcement. ASB is a key player in the global shipbuilding industry and a leader in naval innovation, having a significant portion of its business in the defence and commercial sectors.
Fundamentals are strong
From a fundamental standpoint, the company is strong, with projections for sustained growth over the next 10 years after entering into a strategic shipbuilding agreement with the Australian Government in 2023.
From a technical perspective, the stock traded at a high of $4.99 in November 2019 before falling away to a low of $1.58 in April 2023. Currently, ASB is trading around $2.00, which is the stock's long-term median price. This means the company is trading around a fair price; however, we are looking at what might drive the price higher into the future, and the recent announcement may be just that catalyst.
Recently, the share price broke through a long-term downtrend signalling the worst could be over. If you weigh up the government’s announcement, it's clear that there are strong signs why Austral could have a fantastic 2024 and beyond. I advise paying close attention to this stock and looking for a possible entry in the near future.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au