It's another day in the red for shareholders of boat builder Austal Limited (ASX: ASB), after the company released a disappointing earnings update to the market.
A quick re-cap
Up until early December 2015, shares in Austal were flying with the stock hitting a high of $2.56.
Then investor concerns led to a plunge in the share price over the next month to a low of just 94 cents by mid-January 2016.
From that low the share price then rallied over 50% to a near term high in late April of about $1.60.
This morning the share price is back down to under $1.10.
What's happened?
Austal has today announced that the preliminary results from "physical shock trials" to the Litoral Combat Ship (LCS) 6 have resulted in a significantly higher level of modification to the ship design and cost than previously estimated.
In short, this modification has led to the group taking a US$115 million one-off write back against work in progress to recognise an increase in the cost of construction.
As a result, statutory earnings before interest and tax (EBIT) for the 2016 financial year (FY) are forecast to be a loss of between $116 million and $121 million.
Now What
The good news for shareholders is that Austal's board plans to declare a final dividend of 2 cents per share (cps), bringing the total dividend for the year to 4 cps.
Meanwhile, an EBIT guidance range for FY 2017 has been given of between $45 million and $55 million.
Based on today's guidance, Austal's shares could be cheap and no doubt some value investors are sniffing around wondering if there is a bargain on sale.
For conservative investors however, Austal's shares may simply be too volatile and too risky. A more appropriate investment for risk averse investors could arguably be a diversified blue chip such as Wesfarmers Ltd (ASX: WES), or a listed investment company such as Australian Foundation Investment Co.Ltd. (ASX: AFI). They provide a broader exposure to the economy and no contract risk to a single business operation.
