Forrest-backed Austal welcomes Trump’s AUKUS backing
US Navy shipbuilder Austal thinks it can pass on increases in steel and aluminium costs as a result of tariffs.
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Warship builder Austal says Donald Trump will be good for business and that it can probably absorb increases in steel and aluminium costs as a result of tariffs through clauses built into its contracts with the US Navy.
The Austal share price jumped 13.2 per cent to $4.04 on Friday after better than expected first-half results, and set the scene to beat full-year earnings guidance.
The share price spike came five months after South Korea’s Hanwha abandoned a $1bn takeover tilt for Austal pitched at $2.85 a share in the face of strong resistance from the Austal board.
Austal chief executive Paddy Gregg welcomed Mr Trump’s support for the AUKUS military alliance between the US, the UK and Australia, and raised the prospect the President’s return to the White House might lead to tax breaks for the shipbuilder’s US business.
“It was good to see Trump coming out last week and giving support to AUKUS because there was a lot of airtime being given to ‘will he, won’t he’,” Mr Gregg said.
“But he’s given a positive indication towards AUKUS and that’s something that we really welcome.
“Trump is generally good for business, so maybe we’ll see some tax breaks coming in.
“Every morning we wake up to see what’s going on in the US, and we’ll react accordingly. My overarching feeling is that Trump will be good for business, and we’ve got a lot of business in the US.”
At its shipyard in Alabama, Austal is set to have a big role in building nuclear-powered submarines for the US Navy, on top of billions of dollars in orders for surface vessels.
The company – backed by Andrew and Nicola Forrest, who between them hold a 19.9 per cent stake – uses large volumes of steel and aluminium in building vessels for the US Navy.
“Tariffs will be interesting. Is that just a big stick, or are they going to stick [remain in place]? We think we have clauses in contracts that we can pass on increasing costs,” Mr Gregg said.
“We do try to focus on a lot of our materials coming from the US. That’s just an efficient way to do business. But there are some aluminium extrusions and things like that that do come from overseas because they’re not actually fabricated in the US.
“We need to understand exactly what will happen with tariffs, and if there’ll be any impact to the business. We don’t believe so at the minute.”
ASX-listed BlueScope, the fifth-largest steel producer in the US, has noted a 20 per cent jump in steel prices in the US in the past few weeks.
Austal’s chairman, Richard Spencer, was dumped as secretary of the US Navy by Mr Trump in 2019 after a disagreement over the disciplinary process for a Navy SEAL who was eventually convicted of posing with the corpse of an Islamic State fighter in Iraq.
Austal, anointed by the Albanese government as its monopoly Australian Navy shipbuilder in Western Australia, reported net profit after tax of $25.1m, compared to $12m at the same time last year. Revenue was up 15 per cent at $827.7m and earnings before interest and tax jumped from $32.1m to $42.7m as margins improved.
Austal said it now expected annual earnings of at least $80m before interest and tax. It ended the first half with a record order book of $14.2bn.
Perth-headquartered Austal has two contracts totalling $US600m ($939m) – one from the US Navy and another from General Dynamics Electric Boat – to invest in additional infrastructure at its Alabama shipyard to help build nuclear-powered submarines that are a key plank of the AUKUS security pact.
The US Navy is counting on Austal as it tries to deliver on a goal of delivering one Columbia-class and two Virginia-class submarines every year.
Austal has been building and outfitting command and control systems modules and electronic deck modules for the US nuclear submarine fleet for the past few years.
Mr Gregg said the number of staff employed on submarine work would increase from 150 to about 1000 over the next five years.
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Originally published as Forrest-backed Austal welcomes Trump’s AUKUS backing
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