Messing About in Boats

Austal has been awarded contracts for two high-speed trimaran ferries for Spanish operator Fred Olsen SA and an additional littoral combat ship (LCS) for the US Navy. We see this as positive news, particularly in light of Austal’s previous commentary that commercial ferry market conditions are the strongest seen in the past decade.

 

  • Fast-ferry contract – Austal is to design and build two 117-metre high-speed passenger trimaran ferries for Fred Olsen, which operates the Benchijigua Express – the world’s largest vehicle-passenger trimaran ferry that operates in the Canary Islands, designed and built by Austal in 2005. The contract is valued at €126m (A$190m), with construction on both vessels expected to commence in 2018 for delivery in 29 and 36 months.
  • US LCS30 contract – This is the fifteenth LCS contract won by Austal. The exact value of the award was not been disclosed, but it is below the US congressional cost cap of US$584m (A$750m) per vessel. The US Navy expects to release competitive solicitations for additional LCS-class ships in future years, and so specific detail on the contract award for LCS30 is considered sensitive information. 

Austal and Incat Crowther have established a formal strategic alliance. Incat Crowther, a Sydney-based ship designer, has partnered with Austal on five commercial vessels for four operators since 2015, as well as an additional vessel currently under construction. According to the agreement, Austal and Incat Crowther will work together to pursue projects that include large crew transfer vessels servicing offshore installations, high-speed passenger ferries, and other passenger-only craft in Australia and some overseas markets.

 

The next major catalyst we see for Austal will be the Australian government’s announcement of the winner of the Offshore Patrol Vessel (OPV) contract, expected in late 2017. Austal is one of three contenders for the $3bn ($1bn build, $2bn support), 12-vessel OPV program for the Royal Australian Navy. Austal has teamed with Fassmer of Germany, which would provide the high-level design, while Austal would carry out the detailed design, most of the procurement, and all of the shipbuilding and testing. The government has already announced that the first two vessels will be built in South Australia, commencing CY18, with the following 10 to be constructed in Western Australia. If Austal is successful, the OPV program will provide baseload for its Henderson operations for at least 10 years, commencing from CY20, at about 50% of the current workload level. 

 

We maintain our Accumulate recommendation on Austal with a $2.00 target price.

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