TOL - 25th Feb, 2026
Austal dips 10% but surging defence spending makes this pullback look like an opportunity
Austal is starting to look attractive after a ~35% dip from January record highs as global defence spending continues to soar.
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Austal (ASX: ASB) is facing its steepest and most prolonged drawdown in recent years, dipping 10% today and 35% off its mid-January all-time high. This follows a formidable two-year run up, where it ran from $1.9 to a peak of $8.82.
Today's first-half result reads well at face value, with double digit growth across the board, backed by margin expansion and a solid cash position.
Two weeks ago, Austal disclosed a ~$17.1 million accounting error tied to its T-ATS program incentives that had been baked into its FY26 EBIT guidance. This drove a sharp 22.8% selloff on the day (13-Feb).
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Despite the recent weakness, Austal remains one of few ASX-listed companies that has exposure to the rising global defence spending thematic, including material US exposure (approximately 75% of FY25 revenue). With an order book that's grown almost five-fold since FY23 and substantially more earnings growth ahead, IML's Lucas Goode says this pullback looks like an attractive entry point.
1H26 at a glance
- Revenue up 34.4% to $1.1 billion
- EBIT up 41.3% to $60.3 million
- EBIT margins up 20 bps to 5.4%
- Net profit after tax up 21.4% to $30.5 million
- Net cash position of $241.4 million
- No interim dividend reflecting focus on capex program to rapidly increase shipbuilding capacity
- Order book of $17.7 billion at 20-Feb-26 vs. $13.1 billion at 30-Jun-25 (up 35.1% in eight months)
- "Remains well positioned to add further defence project opportunities in the USA, as well as in Australia through Strategic Shipbuilding Agreement (SSA)."
Do you currently hold the stock and what is your rating?
Goode: We are long-term Austal shareholders, although we have taken advantage of share price strength over the past six months to reduce our weighting. We remain positive on Austal's long term outlook and believe the shares look attractive following the recent pullback.
What matters from the results?
Goode: The market is justifiably concerned with the recent guidance downgrade in which the company admitted to double counting some incentives from the US government, as well as questions from the auditor regarding the accounting treatment of these incentives. However, I would highlight that - while regrettable - these issues are backwards-looking and relate solely to a legacy onerous contract and have no bearing on Austal's earnings potential as it ramps up production on its record order book in both the United States and Australia.
Austal is on track to deliver over $3.5bn of revenue by FY30 with a target shipbuilding EBIT margin of 7-10% as stated on today's call. The resulting earnings should thus dwarf the revised FY26 EBIT guidance of $110m.
How do those outcomes affect the outlook?
Goode: As a prime defence contractor in both Australia and the United States, Austal is very well positioned to benefit from increased military spending around the world. Austal's Alabama shipyard is the most efficient in the United States naval shipbuilding industrial base and we expect it to be a continued beneficiary of increased military spending. The company now has an order book of almost A$18 billion, up from around A$3 billion in FY23.
What should investors be paying attention to as the story unfolds?
Goode: Medium term consensus estimates continue to vastly underappreciate Austal's earnings power as its multitude of recent order wins convert to production in the coming years. Even excluding Australia's general purpose frigate which is yet to be formally awarded, Austal's order book has increased fivefold over the past three years in addition to steadily increasing involvement in nuclear submarine module construction.
A good analyst knows where their blind spots are: What could you be wrong about?
Goode: Austal management has done an exemplary job in winning work in recent years, something that was a core part of our investment thesis when we first invested in the company. However, its ability to execute on such a large increase in throughput in two countries simultaneously remains an open question.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights that matter most to investors.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
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