Austal (ASX:ASB): Building war ships in Donald Trump’s America

Austal (ASX:ASB) is a good option for investors wanting a stock that’ll be beneficiary of Trump’s ‘Made in America’ ambitions, because Austal makes things in America. Plus it makes ships in and for Australia too.

In the midst of a turbulent market, it has just raised $200m to fund its ambitions – a feat in and of itself, but led to a share price decline of 17% in a day because it was at a discount to the current share price.

All about Austal

Austal is headquartered in Perth and has ship building facilities in Australia and the US as well as the Philippines and Vietnam. Ships are not easy or cheap to make, but the company is a leader in its sector and it is located in arguably the best region in the world to be in – the Asia-Pacific where maritime instability is arguably the worst in the world.

Austal recorded $1.5bn in revenue, $56.5m in EBIT and a profit of $14.9m during FY24. At the time, it told investors it had a record order book of $12.7bn with a 10-year horizon. This grew to $14.2bn by the time of its 1H25 results. The company has 51 ships under construction right now and employees over 4,000 people. Obviously, this means surety of revenue over time as these deals will be paid over time and there’s potential for future options to be exercised.

More and more money from governments

Similar to Pro Medicus, expect to hear regular announcements from the company outlining new contracts that have been awarded – not necessarily from the ASX all the time. Investors have been told that there could be over $600m in EBIT over the next 7 years at the current margin of 5.1% and assuming all US options are exercised.

Specifically for FY25, it has told investors to expect no less than US$80m, and that is even with the company having yet to resolve the accounting treatment of all its contracts.

Only last December, the Minister for Defence Industry in Australia announced Austal would build 2 more ECAPES.

Raising $200m in a turbulant market

Earlier this week, Austal raised A$200m to fund expansion of its Alabama shipyard. Raising capital is a feat in and of itself in such a turbulant market. But the very reason for the market turbulance could help Austal. Investors fear that Trump’s tariffs could shut out companies from the US market that manufacture outside the US and import goods into the country.

This shouldn’t impact Austal given it manufactures in America and it is building up its base in Alabama to cater for new contracts – this facility will be operational in FY26 and completed in FY27 if all goes to plan. There is reason for concern about Trump’s tariffs causing a recession in many economies, but this shouldn’t affect defence spending, and in turn not affect Austal.

The total facility will need US$300m and the Australian government will provide 50% of the funding over a 10-year period. The A$200m should more than make up the gap at current exchange rates. Existing shareholder Tatterang chipped in $41m to maintain its 19.6% share in the company – that’s Twiggy Forrest’s private office in case you didn’t know.

One thing that some investors are worried about is that founder John Rothwell is stepping down as chair and becoming a non-executive director. And he sold some of his shares (roughly 10m of the 32m he owns) in the current deal. Plus, deals are always done at a discount, but this one was a large one at over 15% to the previous day’s closing price. But in the current conditions, there was arguably no choice.

Conclusion

Austal is a company that should be a beneficiary of the Trump administration – we don’t imagine Elon Musk’s DOGE will touch the defence industry. There are few companies with an order book as large as Austal has, which will mean it will receive billions of dollars over the next several years.

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