Austal (ASX:ASB) Wins A$4bn Navy Deal: Is It Time to Buy the Dip?

Austal’s Defence Surge: What Investors Should Watch

Austal (ASX: ASB) closed at A$6.30 on Friday, up 5.53% on the day, after the Australian Government awarded it a contract worth about A$4 billion to construct eight Landing Craft Heavy vessels. This announcement came only two months after the A$1.029 billion Landing Craft Medium contract signed in December 2025, lifting the total value of new Australian defence contracts to around A$5 billion.

For investors, the importance is obvious. Austal now has over ten years of secured shipbuilding work in Australia, giving it strong long-term revenue certainty and business stability that very few ASX-listed companies are able to provide.

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From US-Dependent to Geographically Balanced: Why This Deal Matters

Austal has long relied on its US operations for the bulk of its earnings, with the US contributing A$1.39 billion of A$1.82 billion in total FY2025 revenue. That kind of concentration creates risk, especially with shifting political winds in Washington.

These two contracts start to rebalance the picture. Under the Strategic Shipbuilding Agreement signed in August 2025, Austal will build 18 Landing Craft Medium at Henderson, Western Australia, through to 2032, and eight Landing Craft Heavy through to 2038. Each LCH is a 100-metre warship capable of carrying over 200 soldiers and six M1A2 Abrams tanks, based on the proven Damen LST100 design.

We believe this geographic diversification is a major positive. It locks in decades of government-backed work and reinforces Austal’s role as Australia’s sovereign shipbuilder. That is the kind of structural shift that should matter to long-term investors.

Premium Valuation Meets Governance Risk

Austal’s FY2025 numbers were impressive. Revenue grew 24% to A$1.82 billion, EBIT doubled to A$113.4 million, and net profit jumped 503% to A$89.7 million. The company held A$584 million in cash and sits on an order book now exceeding A$14 billion.

At A$6.30, the stock trades at a trailing PE of approximately 27 times based on FY2025 earnings on a market cap of approximately A$2.66 billion. That is a premium valuation for a shipbuilder where margins tend to be thin.

What complicates the picture is the recent turbulence. Austal hit an all-time high of A$8.82 in January before crashing 23% on February 13 after revealing a US$17.1 million accounting error. Management had double-counted incentive payments for the US Navy’s T-ATS program, resulting in FY2026 EBIT guidance being reduced from A$135 million to approximately A$110 million. Austal USA’s president, Michelle Kruger, announced her retirement shortly after the error was revealed, with a search for a permanent successor now underway. The stock bounced back 20% the following Monday, but the episode shook investor confidence.

The Investor’s Takeaway

The bull case is strong: an order book exceeding A$14 billion, 12-plus years of guaranteed work, and sovereign shipbuilder status in a world where defence spending keeps rising.
But the risks are real. The accounting error raised questions about internal controls. Defence margins are tight, and running multiple large builds at once is hard. The stock pays no dividend.

For those who believe in the Australian defence build-out, Austal is worth watching closely. But after such a volatile run, waiting for a pullback toward A$5.50 would improve the risk-reward meaningfully. At A$6.30, we see this as a “watchlist buy,” not a rush-in opportunity.