Shipbuilder Austal Limited (ASX: ASB) took on water this afternoon despite posting record full year revenue and earnings that were ahead of consensus expectations.
The stock dipped 1.1% into the red to $1.86 during lunch time trade after management announced a 26% increase in revenue to $1.41 billion and a 12% jump in underlying earnings before interest and tax (EBIT) to $73.2 million for the year ended June 30, 2015.
Revenue and EBIT are the highest in the company's 27-year history and imply an underlying earnings per share (EPS) of 13.1 cents. Revenue and EPS were a little above the average analysts' forecast on Reuters of $1.36 billion and 13 cents a share.
Management also declared a fully franked 3 cent a share final dividend to take its full year dividend to 4 cents a share.
But that wasn't enough to stop a bout of profit taking after the stock rallied 63% over the past year and some shareholders could have been fretting over the decline in margin that's driven by issues at its US facility, which accounted for 98% of total revenue.
Austal is building the Littoral Combat Ship (LCS) for the US navy and has experienced a cost blowout due to its lack of experience as a prime contractor.
This resulted in the group's EBIT margin slipping to 5.2% in 2014-15 from 5.8% in the year before.
While management anticipates an improvement in the current financial year as it applies what it has learnt to the nine remaining LCSs that it is building, Austal said the improvement will be "incremental".
The news will excite Australian unions as many believe it's too expensive to build ships in this country due to labour costs.
However, Austal has achieved an EBIT margin of 15% at its Australian facility compared to 5.2% in the US.
On a brighter note, Austal has a strong $3.1 billion pipeline of work that stretches to calendar year 2020 and management is upbeat on the company winning extra work from the US navy.
Further, the weak outlook for the Australian dollar can't hurt as the exchange rate will boost the company's translated earnings and is likely to make its Australian operations more competitive.
This means the dip in the share price today should be treated as a buying opportunity with the stock trading at around a 13x price-earnings (P/E) for the current financial year.
Hop on board folks as that looks cheap to me given Austal's outlook.
