Vard Holdings reported a 14.6% YoY rise in revenue to NOK 3,063m but saw a 92.7% fall in operating profit to NOK 9m in 1Q15, due to weaker than expected performance at some of its yards. EBITDA margin fell from 6.4% in 1Q14 to 2.1% in 1Q15, and with restructuring cost, the group incurred a net loss of NOK 92m in the quarter vs. NOK 92m PATMI a year ago. We judge this to be below the street’s expectations as consensus net profit for the full year was NOK 379m prior to this results announcement. With weak new order prospects and likely lower yard utilisation ahead, the outlook for Vard seems rather weak. Based on 10x FY15/16F earnings, we derive a fair value estimate of S$0.41 and SELL rating for Vard.
Weak 1Q15 results
Vard Holdings reported a 14.6% YoY rise in revenue to NOK 3,063m but saw a 92.7% fall in operating profit to NOK 9m in 1Q15, due to weaker than expected performance at some of its yards. EBITDA margin fell from 6.4% in 1Q14 to 2.1% in 1Q15, and with restructuring cost, the group incurred a net loss of NOK 92m in the quarter vs. NOK 92m PATMI a year ago. We judge this to be below the street’s expectations as consensus net profit for the full year was NOK 379m prior to this results announcement.
NOK 15.6b order book, but high run rate
At the end of 1Q15, the order book value amounted to NOK 15.63b, down from NOK 17.74b at the end of 2014 and NOK 21.84b at end 1Q14. Aggregate order value at end 1Q15 was NOK 26.77b, comprising 32 vessels, of which 18 will be of VARD’s own design. The rapid decline in the order book, both in terms of value and number of vessels, reflects the current high pace of revenue recognition stemming from still high activity level at most yards, combined with a very challenging market environment, resulting in no new vessel contracts during the quarter. It also includes the effect of the termination of two contracts during the quarter.
SELL with S$0.41 FV
Meanwhile, new order prospects continue to be weak in the near and medium term, as the OSV industry is suffering from an oversupply issue in most geographical regions; the North Sea has been particularly hard hit. As a result of the shortfall in new orders, Vard expects lower utilization of its shipyards for the 2H15 and in particular in 2016, starting with the yards in Romania and subsequently also affecting operations in Norway and potentially Vietnam.
The Niterói shipyard in Brazil is already in a phase of downsizing, while the new shipyard Vard Promar has secured sufficient work through 2016. Based on 10x FY15/16F earnings, we derive a fair value estimate of S$0.41 and SELL rating for Vard
Vard Holdings reported a 14.6% YoY rise in revenue to NOK 3,063m but saw a 92.7% fall in operating profit to NOK 9m in 1Q15, due to weaker than expected performance at some of its yards. EBITDA margin fell from 6.4% in 1Q14 to 2.1% in 1Q15, and with restructuring cost, the group incurred a net loss of NOK 92m in the quarter vs. NOK 92m PATMI a year ago. We judge this to be below the street’s expectations as consensus net profit for the full year was NOK 379m prior to this results announcement.
NOK 15.6b order book, but high run rate
At the end of 1Q15, the order book value amounted to NOK 15.63b, down from NOK 17.74b at the end of 2014 and NOK 21.84b at end 1Q14. Aggregate order value at end 1Q15 was NOK 26.77b, comprising 32 vessels, of which 18 will be of VARD’s own design. The rapid decline in the order book, both in terms of value and number of vessels, reflects the current high pace of revenue recognition stemming from still high activity level at most yards, combined with a very challenging market environment, resulting in no new vessel contracts during the quarter. It also includes the effect of the termination of two contracts during the quarter.
SELL with S$0.41 FV
Meanwhile, new order prospects continue to be weak in the near and medium term, as the OSV industry is suffering from an oversupply issue in most geographical regions; the North Sea has been particularly hard hit. As a result of the shortfall in new orders, Vard expects lower utilization of its shipyards for the 2H15 and in particular in 2016, starting with the yards in Romania and subsequently also affecting operations in Norway and potentially Vietnam.
The Niterói shipyard in Brazil is already in a phase of downsizing, while the new shipyard Vard Promar has secured sufficient work through 2016. Based on 10x FY15/16F earnings, we derive a fair value estimate of S$0.41 and SELL rating for Vard
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