The US government will invest US$50m in shipbuilding operations. While finding it difficult to argue this is anything but a positive for Austal, Ord Minnett points out the investment does not underwrite the current returns being generated on the mature shipbuilding program, and so there is a risk to the free cash flow profile over the medium term.

Furthermore, unlike its US competitors, Austal has limited experience in building steel-hulled vessels and has limited designs and intellectual property in steel versus its traditional aluminium and aluminium alloy. Lighten retained. Target rises to $2.75 from $2.50.

Sector: Capital Goods.

Target price is $2.75.Current Price is $3.40. Difference: ($0.65) - (brackets indicate current price is over target). If ASB meets the Ord Minnett target it will return approximately -24% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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