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No End To Troubles For Vard! Stay Away Or Buy In?
Hot Picks, Tradeable | 15 October 2014
By: Tradeable
Articles (256)

[UPDATE on Thursday, 16 October 2014, at 9am: Adding details of previous day's market closing figures.]

Premium offshore shipbuilder, Vard Holdings, announced late Tuesday (14 October 2014) night that its upcoming 3Q14 financial performance will not be anything pretty. In fact, the guidance is bracing shareholders for some really ugly numbers.

The market swiftly made known its prognosis of Vard’s current predicaments. Vard ended Wednesday’s trading session down 15.2 percent, closing at $0.695 after recovering slightly from an intraday low of $0.63. The stock was heavily traded with about 78.8 million shares trading hands.

Here’s What We Know:

  • Vard has been facing problems with its Brazilian yard for some time now. In particular, start up costs have over run for the past few quarters at its Brazilian yards, Niterói. and Promar. Things seemed to have improved recently particularly for Promar. However, with this latest announcement, it seems both yards have not been spared margin pressures.
  • Concerns over Niteroi is resurfacing fast and furious. How bad is it? I suppose we can only tell when they release their 3Q14 results

  • Cost overruns seem to have spread to its European yards as well. In its latest announcement, Vard said that it “has revised its estimates for a limited number of projects in its European order book where cost overruns were incurred”. Despite this, Vard mentioned that no impacts on its delivery schedule were expected.
  • The tax claim from Brazil that was announced in August will attract not provisions in Vard’s financial accounts. Previously, analysts had expected Vard to make provisions for the tax claim if the company felt that the Brazilian government had grounds for those tax claims.

Tradeable’s POV

  • Anything that can happen, will happen. It seems that Murphy’s law is happening for all the wrong reasons over at Vard. The margin squeeze is definitely not a good thing for the company. Coupled with the negative EBITDA result, things do not look pretty at all. To really know the full extent of the damage, we have to look at their 3Q14 results that is slated to be announced on Tuesday, 11 November 2014, before market opens for trading.
  • The falling oil prices are also doing Vard no favours. Because of this, I feel that order wins for Vard will slow. In 1H14, Vard won about NOK9 billion worth of orders with management describing this as “exceptional”.
  • Taken in totality, this new development is hugely negative for Vard. Whether or not we can view this as a bottom requires quite some time and we probably will not see any light at the end of the tunnel till 2015. As for bargain hunting, well, I really hesitant to add to my own exposure to the counter, what more advising others to do the same?
  • Best to avoid Vard as you would avoid travelling to any West African country, at least for the time being. If you holding on to some as I am, continue holding. That is quite possibly the only thing we can do as we wait for a turnaround.
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