Austal’s Changes Make Things Worse

After a terrible end to 2015, Austal [ASX:ASB] shares have dropped again. Shares have traded down 18.34% this morning. The global ship building company can’t seem to sail away for investors who are determined to sell.


Source: Google finance

CEO abandoning ship

It was announced this morning that CEO, Andrew Bellamy, is stepping down for the position. His successor, David Singleton, will become CEO-designate as of February this year. Austal seems happy with the change, stating:

Mr Singleton brings a wealth of high relevant business expertise and experience to Austal gained in defence, manufacturing, and military product support and sustainment.

Yet investors don’t see it that way. It was only a month ago that share prices fell 25% on the back of an earnings reduction. And now Austal are trying to make an executive change.

As reflected by the share price, investors aren’t so happy about huge changes while Austal is working towards ship building efficiencies. Too many shocks have left investors with no confidence in Austal’s future performance.

Austal truly believe that they are ‘extremely well positioned for further growth in both Australia and the US.’ But they were put in that position by Mr Bellamy. Not by their unique ability at building defence ships.

Investors might also be reading into Mr Bellamy decision to step away from acting CEO, rather than being asked to step down. Mr Bellamy may know something that we don’t. But these are just rumours at best.

In his tenor Mr Bellamy was able to cut Austal’s debt in half, while growing the businesses under his supervision. Mr Rothwell, Austal Chairman, said:

He has grown the business impressively over that period with revenues increasing threefold and record profits reported.’

I don’t know about you but I wouldn’t let Bellamy go. Having the success of your business push to new highs by the leadership of one man seems like you would want to hang onto him for dear life.

The question on investors’ minds must be, can Austal manage to doggy paddle their way to shore?

Can the new CEO deliver value to shareholders?

Mr Singleton is definitely qualified for the job. He has held numerous roles with BAE Systems, one of the world’s largest defence companies. Coupled with his defence force knowledge, Mr Singleton is well versed in business as well.  Singleton served as global Group Head of Strategy and Merges and Acquisitions in London multiple times.

I doubt many investors would sneeze at his resume, but it doesn’t matter. Austal is in trouble and have just let the man who built up the company walk out the door. I personally believe Mr Singleton will perform well in his new role.

Singleton is no stranger to the role of CEO. In time, I’m sure he will leave his own mark on Austal, much the same as Mr Bellamy has.

Härje Ronngard,

Junior Analyst, Money Morning

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