Vard

Vard: Expect share price to take a hit, after the group issued a profit warning for its 2Q13 results to be lower than consensus market estimates. The grp note that its operations in Brazil continue to negatively affect its performance and margins are impacted by further delays and cost overruns at its Brazil, Niterói yard due to lower productivity than expected, additional costs for outsourcing of hull construction activities to subcontractors, and revisions to the estimates of start-up costs at the new shipyard. The group said it remains confident in the long-term potential of the Brazilian market. However, the overall industrial context in Brazil is still challenging, characterised by higher personnel turnover and intense pressure in the subcontracting market. Add that stabilizing the Niterói operations and successfully ramping up the new yard are a top priority for the group. Operations elsewhere are stable and Vard as a whole remains profitable. The group will announce its unaudited results for the period on July 11. On back of the latest news, Credit Suisse downgrades to U/p from neutral and slashes TP to $0.80 from $1.10. The downward revision to earnings guidance shortly after an update in May, and scope for further cost escalations for two outsourced LPG hulls provide little assurance that challenges have been resolved. House lower 2013-14E EPS and with limited earnings visibility, downgrade Vard to UNDERPERFORM based on a P/B of 1.4x. CIMB downgrades to trading Sell from O/p with $0.94 TP. House expect the stock to come under heavy near-term selling pressure. However, a swift rebound could follow a couple of weeks later on positive news of sizeable pipe-laying support vessel (PLSV) orders. Factoring in lower margins, house cut FY13-15 EPS by 19-36% and downgrade Vard to Trading Sell from Outperform as house expect the market to focus on Brazilian issues and the stock to come under heavy near-term selling pressure. House target implies 1.9x CY13 P/BV, 1 s.d. below its trading mean since listing, which could form a floor for the stock, in house view.