WE recently hosted non-deal roadshows for Vard in Kuala Lumpur and Singapore, after its Q1 2013 results. Head of investor relations, Holger Dilling, met 16 institutional funds.
Investors wanted to know the potential synergies between Vard and Fincantieri. Mr Dilling suggested that there could be numerous joint business opportunities, including a cross-selling of designs; collaboration between the two companies' marine system businesses and a bigger customer base. Vard's roadmap, management team and group structure will remain the same. Other topics included margins, Brazilian operating conditions, order outlook and dividend policy.
In terms of technology, markets and culture, we see Fincantieri as a much better fit for Vard than its previous parent, the STX Group. Also, Fincantieri has greater vested interests in the future growth of Vard while the STX Group was only interested in selling the company in the later years of ownership. Mr Dilling also pointed out that Fincantieri adheres to the highest standards of corporate governance, due to its exposure to naval vessels whose end-customers are governmental units.
On margins, Vard remains conservative, though it believes that operations should stabilise by year-end. We expect margins to improve in 2014 from a scaling of the learning curve for Transpetro orders as well as investment initiatives for its Romanian and Vietnamese yards.
In addition, Vard was markedly positive on its order outlook. Stronger orders and toplines could compensate for lower margins.
Trading at 7.4 times 2014 PE and 4.3 per cent dividend yield, investors agreed that the stock is cheap, against local OSV companies. Vard is our top pick among small or mid-cap offshore and marine stocks. (Target price: $1.40.)
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