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The Worst Is Over For Vard?
Tradeable, Tradeable Ideas | 07 May 2014
By: Raymond Leung
Articles (142) Profile
  1. Cost overruns at Vard’s Niteroi yard continue to hamper its financial performance. Vard Promar is currently set to begin full operations to help alleviate this problem.
  2. Vard recently announced a string of contract wins. These wins, though somewhat extraordinary, has boosted Vard’s order book to an all time high of NOK22 billion.
  3. MacQuarie Research predicts that Vard will have an profit growth of about 54 percent. The house says the counter is a “value-buy” as it is trading at 7 times 2015 forecast P/E.

Table compiling updates by analysts on Vard Holdings
Table compiling updates by analysts on Vard Holdings

Vard Holdings (Vard) have been in troubled waters since it was sold by the Koreans (STX Group) to the Italians (Fincantieri Group). Vard recently released its 1Q14 earnings report.

Profit of the group was dragged down significantly due to cost overruns in building of the Promar shipyard and delays in completion of vessels at its Niteroi shipyard.

Looking at Brazil, it appears that losses there are slowly but surely tapering. Macquarie Research is predicting that losses from Brazilian operations could hit a lower NOK300 million for FY14. A huge chunk of this predicted loss should be recognised in 1H14.

Improving EBITDA margin of 6.4 precent further supports the recovery in Brazil.

Promar, the new shipyard in Brazil is in its final stage and is set to begin full operations. With 1,210 employees, the shipyard is currently constructing its first vessel.

The four vessels that have been delayed in the Niteroi yard are finally back on schedule. One was delivered in early April, one is scheduled to be delivered by this month and the remaining two will be delivered by 1Q15.

All yards in Romania, Norway and Vietnam (previously troubled) are now running at 100 percent and is planning to expand its capacity. With the new orders won in 1Q14, Vard’s order book has reached an all time high of NOK 22 billion.

Macquarie Research views Vard as a value buy as they estimate that the group will have an estimated profit growth of 54 percent and is currently trading at 7 times of the estimated 2015 P/E and 1.2 times of the book value.

Using Discounted Cash Flow Method, analysts from Macquarie Research gave the firm a “Buy” call with a target price of $1.25.

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Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.


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