Austal
Recommendation
Seduced by the company’s record $2.3bn order book, shareholders of ferry and yacht builder Austal were burnt recently by a 9 for 10 capital raising. The share price has fallen 86% since reaching a cyclical high of $3.50 in December 2010, so with the balance sheet in better condition this is a good time for a fresh look.
The company’s financial track record is telling, however. Over the past decade, it hasn’t produced a single dollar of free cash flow, despite reporting a cumulative net profit of $368m. Profits have also been highly cyclical, with dividends falling from a peak of 13 cents per share in 2008 to nothing in 2012.
If Austal can turn its order book into profits and resume paying a decent dividend, the share price could double or more from current levels. But it's a low-quality business, has a lousy track record of producing shareholder returns, is highly reliant on the US Navy, which produced 90% of its revenue in 2012, and will likely only be of interest if you enjoy a punt. AVOID.