Vard

Vard: 4Q14 net profit improved 36.3% y/y to NOK154m, as revenue surged 45.5% to NOK4.5b, bringing FY14 earnings and revenue to NOK349m (-2.2%) and 12.9b (+15.8%), respectively.

For the quarter, top line was driven by delivery of two vessels and a newbuild contract, while EBITDA margin slipped 1.8ppt to 1.9%, dragged by increased costs of materials and subcontract expenses (+63%), as well as higher staff expenses (+19.7%).

Order book at end-2014 lowered to NOK17.7b (from NOK19.4b), impacted by lower E&P spending by upstream O&G companies.

Management expects new order intake for 2015 to remain weak, weighed further by increasing idle vessels from demand shortfall and insufficient charter rates.

No dividends declared for the second consecutive year, in light of lower cash generation from operations and significant cash requirements for existing projects.

Brazil operations are expected to remain demanding until delivery of last legacy projects from the yard in Niteroi, and first vessels from Vard Promar.

Regarding the Brazilian tax claims of ~NOK200m, management expects to receive a decision in its favour, but the legal process is expected to drag by more than 12 months, causing an overhang on the group. Hence, no provision has been made.

To improve profitability, Vard embarked on a cost improvement program, with management citing streamlining with other Fincantieri Group companies.

At $0.565, Vard is valued at 8.9x forward P/E and 0.91x P/B.