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Pretty poor results for 4q13.
Ebitda margins climbed rather marginally qoq despite higher activity levels.
I wonder is it a sign that new contracts are priced at lower margins.
I guess we will have to wait for the annual report to understand the impact caused by provisions for future contract losses.
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Agree, I am not surprise that they press down the margin to secure more contracts, it's a new management team anyway. Full year EPS is just merely 6.27c which gives PE or 14. However market reacted positively due to (i) anticipation that the loss provision is over, and (ii) technical speculation as it has just crosses 200SMA.
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Important to note Niteroi yard is not yet a zero-GPM project. It would be easier if that was the case but because the issue was on high labor turnover and the project continues to run, it means an open possibility that they could face more labor cost albeit these vessels will be delivered by 3Q14 barring no future delays.
Don't forget that parent Fincantieri is a state-owned company in Italy which gives some signal on their acquisition price for VARD. Things would be different if this was a private equity firm but again, between a good manager and a terrible industry, the latter usually preserve.
The cut in dividend is also a strong signal on where cash will be in the future. VARD is running larger vessels which could be a constrain on working capital. I will place little emphasis on their net cash position.
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Just curious. Order book is one thing but how good of quality is it. Will it be lower margins or high risk.
Anywhere you can find this information ?
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Order book just means revenue visibility. Impact on profit margins will be subjected to mgmt capability in their working capital management. Certain things are beyond their control such as cost fluctuations: in this case, labor cost for Niteroi.
In other words, top line is capped while bottom line is uncertain. This is why order book driven companies usually have a discount because technically they can run into zero revenue if order book is not replenish.
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26-02-2014, 05:53 PM
(This post was last modified: 26-02-2014, 05:53 PM by GPD.)
It remains to be seen if they can turn around the seemingly hopeless situation in Niteroi yard. Also I cannot tell if this is a Niteroi yard problem or a operating yards in Brazil problem which will be worse.
Even if they delivered all the ships under construction in Niteroi yard, they cannot leave the yard doing nothing after that. So delivering all the ship will not eliminate all the downsides from that or the Brazilian yards.
I was thinking if this there is a strong signal that the problem in Niteroi yard are largely resolved from this Q reporting, then I will wait for another Q before deciding if VARD got a turnaround story. Now I think I need to wait 2 Qs.
(not vested)
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(26-02-2014, 05:53 PM)GPD Wrote: It remains to be seen if they can turn around the seemingly hopeless situation in Niteroi yard. Also I cannot tell if this is a Niteroi yard problem or a operating yards in Brazil problem which will be worse.
Even if they delivered all the ships under construction in Niteroi yard, they cannot leave the yard doing nothing after that. So delivering all the ship will not eliminate all the downsides from that or the Brazilian yards.
This is a problem both company-specific and industry-wide. Why Niteroi yard is facing such a problem is because the yard wasn't built to construct such a huge vessel as they are currently doing. (There is a very good sell-side report somewhere above this thread which highlights this issue.) As a result, some of the outfitting has to be done separately outside the yard and this incur additional costs. The industry-wide problem occurs because of the higher labor cost. Yes, you are right that such a problem persists even after the delivery of the 4 problematic vessels. The encouraging side is that VARD does not own the Niteroi yard. They lease it and hopefully, the contract is expiring soon. Before such an issue occurred, the yard was doing fine. So, at the very least, if mgmt does not stress the yard with a large vessel contract, it is possible they won't incur large cost pressure.
(26-02-2014, 05:53 PM)GPD Wrote: I was thinking if this there is a strong signal that the problem in Niteroi yard are largely resolved from this Q reporting, then I will wait for another Q before deciding if VARD got a turnaround story. Now I think I need to wait 2 Qs.
Problem is we don't know what is the potential return for this turnaround story. Yes, there is some recovery but mgmt clearly thinks that the return to 2010/2011 profit level is not anytime soon. Most of the indicators are now seem to point that recovery is there
but it will be challenging. Personally, I think the discount to Fincantieri's acquisition price is not as comfortable as how it looks to be. Their track record is not that impressive: they acquired Manitowoc Marine back in 2008. I didn't dig deep into it but profits have never return to 2007 levels. Bear in mind this is a similar company to Fincantieri's core competency in military and cruise vessels.
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18-03-2014, 02:41 AM
(This post was last modified: 18-03-2014, 02:41 AM by GPD.)
VARD is on steroid! Bombarding market with strings of positive news. At the last close price it is trading at 16x FY13 PE. This is way ahead of it FY11 PE of 6 and FY12 PE of 8 and in anticipation of EPS doubling or tripling in the next year or so.
I must said Market favours VARD more than its peers as it was allowed to trade at PE of 13-14 during its worse days while its peers with decent EPS continue to trade at PE of 8-9 on average.
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