Vard

Vard: Released a terrible set of 2Q13 results, where bottom-line missed street’s readjusted forecasts, following a recent profit warning. Revenue at NOK2.9b, (-1% y/y ; +7% q/q) while the group registered a net loss of NOK20m versus net profits of NOK113m y/y and NOK188m q/q. EBITDA margins collapsed to 4.1% versus 13.8% y/y. The result brings 1H13 revenue to NOK5.7b, -7% and net profit to NOK168m, -69%. The disastrous performance was largely from Vard’s Brazil operations, where the group faced further delays and cost overruns at its Niterói yard, and high pre-operational expenses at its new yard Vard Promar. Meanwhile operations elsewhere in the group remained stable, although yard utilizations in Vietnam is now at sub-optimal levels following the delivery of the second-to-last vessel in group’s order book. Going forward, Vard expects the challenging business environment in Brazil to remain, although guides that while Vard Niterói is still suffering from an overload situation, the last hull that was being built outside of the yard has now been delivered and that could offer some respite to recent cost overruns. Meanwhile, mitigating actions are being implemented, including the reorganization, stricter follow-up of subcontracted work, and increasing the usage of expatriates, aimed at strengthening the organization. On its outlook, Vard remains positive on securing more contracts in 2H13, with YTD contract wins at NOK4.0b. The group’s total order book currently stands at ~NOK14b which underpins earnings visibility for the next 2 years. At current price, Vard trades at 10x forward P/E and 1.6x P/B. Latest broker ratings as follow: Credit Suisse maintains U/p with unchanged $0.80 TP Morgan Stanley maintains U/w with $0.75 TP OCBC downgrade to Sell from Hold and lowers TP to $0.80 from $0.93 CIMB upgrade to Hold from Trading Sell but reduces TP to $0.89 from $0.94 Maybank-KE downgrades to Hold from Buy and slashes TP to $0.95 from $1.52 Macquarie maintains O/p with $1.10 TP Nordea upgrades to Buy from Sell with $1.00 TP