Vard (formerly: STX OSV)

[KopiKat]

I must admit it's darn scary to see the huge volume (aro' 10% from shortists?) and ~20% drop in share price since this Profit Guidance (not Profit Warning).... Still, I couldn't stop my itchy fingers from doing some small buy backs... Let's see how bad it's going to be on 11-Jul when they announce their Q2 results... Dare I even hope for a small Interim Div of 1-1.5ct...? Perhaps not, if Brazil yard is going to continue to bleed badly till year end??...

[Clement]

Hi, first time poster here on value buddies. I am a fellow shareholder in Vard and would like to share my primary concerns regarding the company. 1) High inflation in Brazil and the difficulties in shipbuilding in such environments. 2) The reputation damage caused by the delay in deliveries and it's impact on Vard's competitiveness in future orders. Any buddies here have any views regarding these 2 points?

[BlueKelah]

I must admit it's darn scary to see the huge volume (aro' 10% from shortists?) and ~20% drop in share price since this Profit Guidance (not Profit Warning).... Still, I couldn't stop my itchy fingers from doing some small buy backs... Let's see how bad it's going to be on 11-Jul when they announce their Q2 results... Dare I even hope for a small Interim Div of 1-1.5ct...? Perhaps not, if Brazil yard is going to continue to bleed badly till year end??...

Downturn in shipping + overcapacity in china, you will need to have balls of steel to accumulate this counter..

Clement 1) high inflation just causes lower margins as materials and labor will increase, 2) global shipping downturn, even with good rep, do you think they will get more orders than usual?

YZJ is already trading below NAV. Vard now still trading above NAV ~1.46 times. Probably the slowdown has not hit the OSV market as hard yet.

[KopiKat]

I must admit it's darn scary to see the huge volume (aro' 10% from shortists?) and ~20% drop in share price since this Profit Guidance (not Profit Warning).... Still, I couldn't stop my itchy fingers from doing some small buy backs... Let's see how bad it's going to be on 11-Jul when they announce their Q2 results... Dare I even hope for a small Interim Div of 1-1.5ct...? Perhaps not, if Brazil yard is going to continue to bleed badly till year end??...

Downturn in shipping + overcapacity in china, you will need balls of steel to accumulate this counter..

Altho' Vard are building ships, they are in OSV ie. Offshore Support Vessels. Their biz would have a more positive co-relation to the Oil Industry, rather than Shipping Industry. Also, their strength is in the rugged North Sea region in Europe and not the cut-throat Asia market (Brazil is a different story....).

[Clement]

Hi, thanks for the reply Bluekelah. As to the overcapacity problems in Asia, this can be seen in the low utilisation rate in Vard's Vietnam yard. Brazil's offshore market has a local content requirement therefore Vard's competitors in that space are mainly other Brazilian yards.

[BlueKelah]

Hi, thanks for the reply Bluekelah. As to the overcapacity problems in Asia, this can be seen in the low utilisation rate in Vard's Vietnam yard. Brazil's offshore market has a local content requirement therefore Vard's competitors in that space are mainly other Brazilian yards.

So in short, asia segment bad, europe segment is good and brazil new segment is hard to predict.

So value wise where is the value now? Can someone enlighten?

Sounds like investors are now buying or holding Vard based on "the next emerging market growth" sentiment?

[Greenrookie]

I must admit it's darn scary to see the huge volume (aro' 10% from shortists?) and ~20% drop in share price since this Profit Guidance (not Profit Warning).... Still, I couldn't stop my itchy fingers from doing some small buy backs... Let's see how bad it's going to be on 11-Jul when they announce their Q2 results... Dare I even hope for a small Interim Div of 1-1.5ct...? Perhaps not, if Brazil yard is going to continue to bleed badly till year end??...

Hi KopiKat,

I am interested in Vard too. I run some simplistic tests:

1) Vard has a total of 375 million USD loan of the ship building projects in that ill-fated brazil yard.

2) 2012 Revenue is about 1.5 billion USD for 2012 in Norway alone. Assume that have that in 2013 (Vessals to be delievered in 2013 is higher than 2012, and discounting for brazil )and net margin become a low 5%, NP for 2013 is 75 million

1/3 given out as dividend =25/1180
=2.1 cents (still ok if you buy into recovery story, 2.3 yield as you wait...)

2012 dividend= 14 cents,2011 dividends= 8 cents. IF you value the price of vard using yield and impose worst case scenario, the 20% drop in price might not actually be excessive.

However, if that decide to throw in towel and decide to impair all the projects and hence the loans in 2013 (hypothetical worst case scenario )

1) they will make a loss of 300 million

and equity is only 557 million, so more than half of value wipe out although brazil just make up about 15% of revenue.
Scary...

NOt accounting trained, gladly accept any mistakes pointed out for learning purposes.

(Not vested, but finger getting itchy too)

[l0nEr]

Hi KopiKat,

I am interested in Vard too. I run some simplistic tests:

1) Vard has a total of 375 million USD loan of the ship building projects in that ill-fated brazil yard.

2) 2012 Revenue is about 1.5 billion USD for 2012 in Norway alone. Assume that have that in 2013 (Vessals to be delievered in 2013 is higher than 2012, and discounting for brazil )and net margin become a low 5%, NP for 2013 is 75 million

1/3 given out as dividend =25/1180
=2.1 cents (still ok if you buy into recovery story, 2.3 yield as you wait...)

2012 dividend= 14 cents,2011 dividends= 8 cents. IF you value the price of vard using yield and impose worst case scenario, the 20% drop in price might not actually be excessive.

However, if that decide to throw in towel and decide to impair all the projects and hence the loans in 2013 (hypothetical worst case scenario )

1) they will make a loss of 300 million

and equity is only 557 million, so more than half of value wipe out although brazil just make up about 15% of revenue.
Scary...

NOt accounting trained, gladly accept any mistakes pointed out for learning purposes.

(Not vested, but finger getting itchy too)

wow, your analysis seems a little too conservative.
NP of NOK75m seems really low compared to consensus (which i wouldnt say is correct either).

To impair the entire loan portfolio seems excessive too. On theory, when they deliver the boats (delay but still delivered), they will still get paid so no impairments. Right now, what Vard seems to be saying is that those ships from the Brazil yard should barely breakeven, and would have to incur additional costs for project delays (hence a loss). Hence, I thought that instead of taking a NOK375m impairment, its more likely to be a %age of contract value?
I dont have any of these numbers with me...

Im vested, stuck since long ago (should have practiced cut loss).
But i thought that post-earnings would be a better time to pick up.
If the management wants to earnings manage (i.e. write off everything as much as possible in this quarter), the next few quarters should improve.
if the Italians discovered something that the Koreans didnt tell them before hand, the would probably want to write off this quarter. So i thought this quarter results might look bad.
On the brighter note, this is a profit guidance, not a profit warning that earnings would be significantly lower than a year ago.

Side note: realised this upcoming earnings is released much earlier than last time + no teleconference.

[Greenrookie]

Hi KopiKat,

I am interested in Vard too. I run some simplistic tests:

1) Vard has a total of 375 million USD loan of the ship building projects in that ill-fated brazil yard.

2) 2012 Revenue is about 1.5 billion USD for 2012 in Norway alone. Assume that have that in 2013 (Vessals to be delievered in 2013 is higher than 2012, and discounting for brazil )and net margin become a low 5%, NP for 2013 is 75 million

1/3 given out as dividend =25/1180
=2.1 cents (still ok if you buy into recovery story, 2.3 yield as you wait...)

2012 dividend= 14 cents,2011 dividends= 8 cents. IF you value the price of vard using yield and impose worst case scenario, the 20% drop in price might not actually be excessive.

However, if that decide to throw in towel and decide to impair all the projects and hence the loans in 2013 (hypothetical worst case scenario )

1) they will make a loss of 300 million

and equity is only 557 million, so more than half of value wipe out although brazil just make up about 15% of revenue.
Scary...

NOt accounting trained, gladly accept any mistakes pointed out for learning purposes.

(Not vested, but finger getting itchy too)

wow, your analysis seems a little too conservative.
NP of NOK75m seems really low compared to consensus (which i wouldnt say is correct either).

To impair the entire loan portfolio seems excessive too. On theory, when they deliver the boats (delay but still delivered), they will still get paid so no impairments. Right now, what Vard seems to be saying is that those ships from the Brazil yard should barely breakeven, and would have to incur additional costs for project delays (hence a loss). Hence, I thought that instead of taking a NOK375m impairment, its more likely to be a %age of contract value?
I dont have any of these numbers with me...

Im vested, stuck since long ago (should have practiced cut loss).
But i thought that post-earnings would be a better time to pick up.
If the management wants to earnings manage (i.e. write off everything as much as possible in this quarter), the next few quarters should improve.
if the Italians discovered something that the Koreans didnt tell them before hand, the would probably want to write off this quarter. So i thought this quarter results might look bad.
On the brighter note, this is a profit guidance, not a profit warning that earnings would be significantly lower than a year ago.

Side note: realised this upcoming earnings is released much earlier than last time + no teleconference.

oops sorry, all figures quoted are in USD, so the dividend is 2.1USD cents.. (1USD=6.1 NOK)

[l0nEr]

oops sorry, all figures quoted are in USD, so the dividend is 2.1USD cents.. (1USD=6.1 NOK)

oops, my bad, i should have read properly. haha