RESIDENTIAL housing prices are fuelling economic recovery stories both here and abroad, with news this week of a record 16.2 per cent rise in US home sales in January. The medium home price was up more than 10 per cent over the past year. This is a similar story to Australia, where established residential house prices rose more than 14 per cent in the year to September.Economists are unconvinced about the economic influence of a residential housing boom. However, while turnover in the existing housing market has fewer knock-on effects than the new-homes market, rising home prices tend to underpin consumer spending by making people feel wealthier.The housing boom has been fuelled by the historically low interest rates and, in the US, a disenchantment with equities as an investment. Homeowners have been rushing to refinance mortgages and use this capital to either pay down existing debt or increase their spending.There are good stories in the equity market, however, but the problem is that investors need to be selective.One WA stock that has outperformed recently is Austal Limited, with its share price strengthening from a low of 90 cents in September to $1.50 this week.Austal LimitedDespite the past year being a soft one operationally for Austal Limited, with the dividend drop and a rights issue launched, the longer-term outlook for the ship-building business is improving. The company has diversified since its float with the acquisition of Oceanfast, has commenced an operational facility in the US and has recently been successful in contract negotiations.Since the September 11th terrorist attacks, Austal Limited has benefited from US military spending. In late January, Austal announced a major breakthrough in the use of fast ferry technology securing a three-year contract with the US military. This is a turning point for the company, with military spending being a potential company maker for Austal.The vessel has been leased to the military, having been sold to a financier for more than $80 million.This will enable Austal to book a profit of $15-$18 million. The sale of this vessel will leave the Austal Limited’s balance sheet in a strong position, with more than $150 million in cash being raised in the past six months. A total of $80 million was raised from the sale, $30 million was raised from the rights issue and $40 million from the sale of customs vessel leases.Oceanfast has continued to provide growth and earnings to Austal Limited, with a recent new order for a 52-metre luxury motor yacht. The value of this order is estimated at between $35 million and $50 million, and takes the total value of vessels now on order to approximately $200 million.This order complements current work in progress, including Greg Norman’s 69.5-metre Expedition Yacht. Greg Norman has been contracted by Oceanfast to help promote its product around the world.At current levels, the company’s earnings multiple of 7.5 times is based on trading multiples of similar companies in the US. It is of particular interest that Austal is not forecast to operate at full capacity until the 2002 financial year, and the valuations at full capacity equates to over $2 per share.
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