Vard Holdings Limited’s (VARD) 3Q13 results fell short of ours and the street’s expectations, with revenue and PATMI dipping by 3.5% and 66.7% YoY to NOK2,370m and NOK76m, respectively. There was also strong margins pressure as its Niteroi yard in Brazil continued to experience cost overruns and delays. Nevertheless, the situation appears to be stabilising and we are also positive on its healthy orders intake worth NOK7.95b in 3Q13. This has boosted its orderbook to NOK19.5b as at 30 Sep 2013, versus NOK16.4b as at 30 Sep 2012. We rework our assumptions following a change in analyst coverage, lowering our FY13 and FY14 PATMI projections by 23.1% and 2.7%, respectively. Applying a PER valuation peg of 8x (approximately in-line with its average forward PER since listing) to our FY14F EPS forecast, we derive a new fair value estimate of S$0.84 (previously S$0.80). Upgrade VARD from Sell to HOLD.
3Q13 results below our expectations
Vard Holdings Limited’s (VARD) 3Q13 results fell short of ours and the street’s expectations, with revenue and PATMI dipping by 3.5% and 66.7% YoY to NOK2,370m and NOK76m, respectively. However, this was a reversal from the net loss of NOK20m suffered in 2Q13 as VARD had taken an impairment of goodwill (NOK70m) on its Niteroi yard in Brazil then. For 9M13, revenue and PATMI dipped 6.3% and 68.6% to NOK8,062m and NOK244m, forming 68.0% and 52.0% of our previous FY13 forecasts, respectively.
Orders intake healthy; but Brazil still a drag
VARD’s EBITDA and net margin fell from 13.5% and 9.3% in 3Q12 to 4.3% and 3.2% in 3Q13, respectively. This was attributed largely to continued cost overruns and delays at its Niteroi yard in Brazil. Management highlighted that the situation is stabilising, and it has booked in all the foreseeable losses on the ongoing projects at its Niteroi yard (four vessels under construction). On a positive note, VARD secured healthy orders intake of NOK7.95b in 3Q13, thus boosting its 9M13 contract wins to NOK11.9b. Its orderbook stood at NOK19.5b as at 30 Sep 2013, versus NOK16.4b as at 30 Sep 2012.
Upgrade to HOLD
We rework our assumptions on VARD following a change in analyst coverage, and now assume order wins of NOK12.9b in FY13 and NOK11b in FY14. Our revenue and PATMI forecasts are lowered by 9.2% and 23.1% for FY13, and 7.5% and 2.7% for FY14, respectively. Although we expect the operating environment in Brazil to remain challenging for VARD in the near future which may continue to exert pressure on its margins, we are positive on its recent strong order wins trend. Management highlighted that it is seeing a high level of tendering activities. We now apply a PER valuation peg of 8x (approximately in-line with its average forward PER since listing) to our FY14F EPS estimate, and consequently derive a new fair value estimate of S$0.84 (previously S$0.80). We upgrade VARD from Sell to HOLD. Upside potential appears limited at this juncture, in our opinion.
Vard Holdings Limited’s (VARD) 3Q13 results fell short of ours and the street’s expectations, with revenue and PATMI dipping by 3.5% and 66.7% YoY to NOK2,370m and NOK76m, respectively. However, this was a reversal from the net loss of NOK20m suffered in 2Q13 as VARD had taken an impairment of goodwill (NOK70m) on its Niteroi yard in Brazil then. For 9M13, revenue and PATMI dipped 6.3% and 68.6% to NOK8,062m and NOK244m, forming 68.0% and 52.0% of our previous FY13 forecasts, respectively.
Orders intake healthy; but Brazil still a drag
VARD’s EBITDA and net margin fell from 13.5% and 9.3% in 3Q12 to 4.3% and 3.2% in 3Q13, respectively. This was attributed largely to continued cost overruns and delays at its Niteroi yard in Brazil. Management highlighted that the situation is stabilising, and it has booked in all the foreseeable losses on the ongoing projects at its Niteroi yard (four vessels under construction). On a positive note, VARD secured healthy orders intake of NOK7.95b in 3Q13, thus boosting its 9M13 contract wins to NOK11.9b. Its orderbook stood at NOK19.5b as at 30 Sep 2013, versus NOK16.4b as at 30 Sep 2012.
Upgrade to HOLD
We rework our assumptions on VARD following a change in analyst coverage, and now assume order wins of NOK12.9b in FY13 and NOK11b in FY14. Our revenue and PATMI forecasts are lowered by 9.2% and 23.1% for FY13, and 7.5% and 2.7% for FY14, respectively. Although we expect the operating environment in Brazil to remain challenging for VARD in the near future which may continue to exert pressure on its margins, we are positive on its recent strong order wins trend. Management highlighted that it is seeing a high level of tendering activities. We now apply a PER valuation peg of 8x (approximately in-line with its average forward PER since listing) to our FY14F EPS estimate, and consequently derive a new fair value estimate of S$0.84 (previously S$0.80). We upgrade VARD from Sell to HOLD. Upside potential appears limited at this juncture, in our opinion.
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