SP clearly feeling the heat. Maybe this ship builder can be...

SP clearly feeling the heat. Maybe this ship builder can be turned around.

Austal (ASB) | Australian opportunities, but US still key | HOLD
Market Cap $506m | Current Price $1.46 | Valuation $1.70
While the pipeline in Australia has dominated headlines in recent months, U.S. ship build programmes continue to dominate both revenue and the order book.  Recent comment that margins in the Littoral Combat Ship (LCS) programme (which is by far ASB’s most important) are under review therefore gives us pause.  Building in more cautious margin assumptions for U.S. ships see our group EBIT numbers fall 9-10% over the next three years and our blended valuation reduce to $1.70 (prior $1.90).  We have no doubt that LCS margins will improve as the programme matures, but until there is greater clarity we downgrade our recommendation to hold (prior buy).