Vard Holdings Limited (VARD) has clinched an estimated NOK2.7b worth of new contracts in 2Q14. This has further enhanced its revenue visibility from 2014 to 2016. Meanwhile, we believe the outlook on the OSV and subsea sectors remain robust, including the Arctic regions, of which VARD has a strong competitive advantage. However, there are also downside risks as highlighted by some of its key customers. We now forecast VARD to clinch NOK13b worth of contracts each in FY14 and FY15. Correspondingly, we raise our FY14 and FY15 PATMI projections by 0.7% and 6.4%, respectively. As we also raise our target PER peg from 9x to 10x blended FY14/15F EPS to reflect VARD’s improved earnings visibility, our fair value estimate is bumped up from S$0.97 to S$1.12. However, we maintain HOLD on VARD, as we believe the market has priced in its recovery prospects and orders momentum.
Estimated NOK2.7b of new order wins since 1Q14
Following Vard Holdings Limited’s (VARD) buoyant new orders intake of NOK5.5b in 1Q14 (39% of FY13’s total order wins) which boosted its order book to NOK21.8b (as at 31 Mar 2014), the group has followed up by securing another NOK2.7b of contracts in 2Q14, based on our estimates. This has further enhanced VARD’s revenue visibility from 2014 to 2016. We believe VARD is now in a solid position to exceed our FY14 order wins estimate of NOK11.5b. We now forecast VARD to clinch NOK13b worth of contracts each in FY14 and FY15. Correspondingly, we raise our FY14 and FY15 PATMI projections by 0.7% and 6.4%, respectively.
OSV outlook still largely positive
Our revised forecast is premised on a still robust outlook on the OSV and subsea sectors, including the Arctic regions, of which VARD has a strong competitive advantage. According to major OSV operator Tidewater, the Arctic markets will be a key area for higher exploration and development activity over time. Meanwhile, the OSV-to-rig-ratio has stayed stable at 4.36 for the month of May, but may decline to 3.71 in the future if we take into account the number of OSVs and rigs currently under construction. However, there are also downside risks, as some of VARD’s key customers such as DOF ASA, Solstad and Siem Offshore had recently described the North Sea spot market as volatile, especially for the AHTS segment.
Maintain HOLD
Although we raise our valuation target PER peg from 9x to 10x blended FY14/15F EPS to reflect VARD’s improved earnings visibility and consequently bump up our fair value estimate from S$0.97 to S$1.12, we believe the market has already priced in VARD’s recovery prospects and orders momentum. The stock has appreciated by a stellar 29.4% YTD. In light of the aforementioned factors, we maintain our HOLDrating on VARD.
Following Vard Holdings Limited’s (VARD) buoyant new orders intake of NOK5.5b in 1Q14 (39% of FY13’s total order wins) which boosted its order book to NOK21.8b (as at 31 Mar 2014), the group has followed up by securing another NOK2.7b of contracts in 2Q14, based on our estimates. This has further enhanced VARD’s revenue visibility from 2014 to 2016. We believe VARD is now in a solid position to exceed our FY14 order wins estimate of NOK11.5b. We now forecast VARD to clinch NOK13b worth of contracts each in FY14 and FY15. Correspondingly, we raise our FY14 and FY15 PATMI projections by 0.7% and 6.4%, respectively.
OSV outlook still largely positive
Our revised forecast is premised on a still robust outlook on the OSV and subsea sectors, including the Arctic regions, of which VARD has a strong competitive advantage. According to major OSV operator Tidewater, the Arctic markets will be a key area for higher exploration and development activity over time. Meanwhile, the OSV-to-rig-ratio has stayed stable at 4.36 for the month of May, but may decline to 3.71 in the future if we take into account the number of OSVs and rigs currently under construction. However, there are also downside risks, as some of VARD’s key customers such as DOF ASA, Solstad and Siem Offshore had recently described the North Sea spot market as volatile, especially for the AHTS segment.
Maintain HOLD
Although we raise our valuation target PER peg from 9x to 10x blended FY14/15F EPS to reflect VARD’s improved earnings visibility and consequently bump up our fair value estimate from S$0.97 to S$1.12, we believe the market has already priced in VARD’s recovery prospects and orders momentum. The stock has appreciated by a stellar 29.4% YTD. In light of the aforementioned factors, we maintain our HOLDrating on VARD.
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