(04-07-2013, 10:47 PM)Clement Wrote: Hi Loner, care to post where you got those figures on point 2? I'll try to make some sense out of them.
To further address your post, book value multiples can imply future earnings expectations. In theory, if roe exceeds required returns on equity, price is expected to exceed book value. Ev multiples can also be similarly justified comparing fcff to wacc. Margins are not exactly locked in when contracts are signed. Only price is locked in unless it's a cost plus contract. In this case, the entire Brazilian shipbuilding industry is suffering from delays and cost overruns due to demand/supply of subcontractors and other personnel.
My gut feel guess is that Stx probably signed many orders at low margins to dress up the order book for the sale. This might also explain the low transaction price relative to market price at that time. Now, the accounting standards for long lived contracts requires management to recognize all foreseeable losses on the contracts. Based on the language of the profit warning, I am suspecting that this is the case.
Ive attached the slide from the Q1 presentation.
The figures are based on calculated based on the assumptions that the norway/romania/vietnam ships can maintain their EBITDA margins, while adjusting the Brazilian ships lower.
yes, they have already said the newer contracts are of lower expected margins due to competition and different boat types. Cant remember if the PSV or AHTS are the lower margin types, which is why they will never be able to generate the peak 17% margin achieved in 2011.
Agreed, I meant some ppl tend to look at PB individually, without considering the ROE factor. What i meant was margins would have been expected before they enter into a contract (there is a IRR before they enter), and except for cost overrun, they should achieve that margin. So in the sense you probably can estimate roughly where the margin would be, but with a greater downside risk.
(04-07-2013, 10:47 PM)Clement Wrote: Hi Loner, care to post where you got those figures on point 2? I'll try to make some sense out of them.
To further address your post, book value multiples can imply future earnings expectations. In theory, if roe exceeds required returns on equity, price is expected to exceed book value. Ev multiples can also be similarly justified comparing fcff to wacc. Margins are not exactly locked in when contracts are signed. Only price is locked in unless it's a cost plus contract. In this case, the entire Brazilian shipbuilding industry is suffering from delays and cost overruns due to demand/supply of subcontractors and other personnel.
My gut feel guess is that Stx probably signed many orders at low margins to dress up the order book for the sale. This might also explain the low transaction price relative to market price at that time. Now, the accounting standards for long lived contracts requires management to recognize all foreseeable losses on the contracts. Based on the language of the profit warning, I am suspecting that this is the case.
Ive attached the slide from the Q1 presentation.
The figures are based on calculated based on the assumptions that the norway/romania/vietnam ships can maintain their EBITDA margins, while adjusting the Brazilian ships lower.
yes, they have already said the newer contracts are of lower expected margins due to competition and different boat types. Cant remember if the PSV or AHTS are the lower margin types, which is why they will never be able to generate the peak 17% margin achieved in 2011.
Agreed, I meant some ppl tend to look at PB individually, without considering the ROE factor. What i meant was margins would have been expected before they enter into a contract (there is a IRR before they enter), and except for cost overrun, they should achieve that margin. So in the sense you probably can estimate roughly where the margin would be, but with a greater downside risk.
Hi Loner,
The margins were probably caused by optimistic assumptions about the subcontracting and basic materials markets in Brazil during the tender pricing process. Given that some of the legacy orderbook vessels will be delivered soon, i think the impact of the Niteroi yard will be less impactful in future quarters. The profit guidance also stated that the reduction in margins is partly related to revisions of start-up cost estimates for the Promar yard which might be a one off.
Vard has just announced that they will be hosting an earnings call next thursday, we can get ourselves into the earnings call to get more detailed information.
You should do your own numbers but from a simplistic investment "pattern" point of view:
* If a company comprises of a good part and a bad part AND
* the bad part can either be corrected or worse case cut away AND
* the price is way below what the good part is worth AND
* management is rational
You may have found a gem hidden in a lemon.
Vested in a small position. Will add when the technical indicators turn upwards.
P.S.: Sorry for the way the post is written - reflects my IT background.
Cheers!
05-07-2013, 02:10 PM (This post was last modified: 05-07-2013, 02:12 PM by yeokiwi.)
(05-07-2013, 01:41 PM)nsengkia Wrote: You should do your own numbers but from a simplistic investment "pattern" point of view:
* If a company comprises of a good part and a bad part AND
* the bad part can either be corrected or worse case cut away AND
* the price is way below what the good part is worth AND
* management is rational
You may have found a gem hidden in a lemon.
Vested in a small position. Will add when the technical indicators turn upwards.
P.S.: Sorry for the way the post is written - reflects my IT background.
Cheers!
this business has a fundamental flaw, which is that it charges too little upfront for its contract and bills even less or none subsequently before delivery.
that's why it has a huge amount of construction loan. It runs a risk of that the counter party can just walk away if the price falls too much and at that moment it would be hard to sell it to someone else at original price. I believe that's what happened during 2009.
nonetheless, the company is more capable than its Asian peers in high spec OSVs and has the capability to design OSVs. The strong and able one always comes back when the time is good and the good time will always comes.
It is possible that the company will just eliminate its dividend.
The margins were probably caused by optimistic assumptions about the subcontracting and basic materials markets in Brazil during the tender pricing process. Given that some of the legacy orderbook vessels will be delivered soon, i think the impact of the Niteroi yard will be less impactful in future quarters. The profit guidance also stated that the reduction in margins is partly related to revisions of start-up cost estimates for the Promar yard which might be a one off.
Vard has just announced that they will be hosting an earnings call next thursday, we can get ourselves into the earnings call to get more detailed information.
Haha, ya im just thinking that the impact from Brazil is small coz its a small portion of the entire business (2/24 ships), and was never expected to contribute meaningfully in the near term. Brazil contributed to 12% of total revenue in 2012 and 16% in 2011 though, strangely. Granted that they made a too optimistic estimate of their profit margin when entering into the projects, a 50% loss for a single project (which means probably overestimation by 60%) seems a little too much. just a thought.
Yep, thats why i think should wait for next week's earnings to get a clearer picture before deciding on the best course of action.
(05-07-2013, 02:23 PM)freedom Wrote: this business has a fundamental flaw, which is that it charges too little upfront for its contract and bills even less or none subsequently before delivery.
that's why it has a huge amount of construction loan. It runs a risk of that the counter party can just walk away if the price falls too much and at that moment it would be hard to sell it to someone else at original price. I believe that's what happened during 2009.
nonetheless, the company is more capable than its Asian peers in high spec OSVs and has the capability to design OSVs. The strong and able one always comes back when the time is good and the good time will always comes.
It is possible that the company will just eliminate its dividend.
Hi,
Actually, i would be supportive if the company elects not to pay a interim dividend to improve it's near term liquidity profile. However, i am concerned about the cash generated from operations. Work in progress is very prone to accounting tricks, especially in unaudited financial reports.
The margins were probably caused by optimistic assumptions about the subcontracting and basic materials markets in Brazil during the tender pricing process. Given that some of the legacy orderbook vessels will be delivered soon, i think the impact of the Niteroi yard will be less impactful in future quarters. The profit guidance also stated that the reduction in margins is partly related to revisions of start-up cost estimates for the Promar yard which might be a one off.
Vard has just announced that they will be hosting an earnings call next thursday, we can get ourselves into the earnings call to get more detailed information.
Haha, ya im just thinking that the impact from Brazil is small coz its a small portion of the entire business (2/24 ships), and was never expected to contribute meaningfully in the near term. Brazil contributed to 12% of total revenue in 2012 and 16% in 2011 though, strangely. Granted that they made a too optimistic estimate of their profit margin when entering into the projects, a 50% loss for a single project (which means probably overestimation by 60%) seems a little too much. just a thought.
Yep, thats why i think should wait for next week's earnings to get a clearer picture before deciding on the best course of action.
Hi, I think the 50% losses, while sounding outlandish might be possible especially with provisions for late delivery penalties etc. Look at what the sand ban did to the costs of our IRs. Even if that were the case, I think Vard can learn from this setback and put it behind them, and therefore view the current price as low as the market seems to have unreasonably extrapolated their problems into the future.
It's been just a few months since taking control this co. The Italians have to issue such a profit guidance. And not due to an external, macro factor.
What does that tell us about their competence or lack of? The thoroughness of their due diligence process?
Or is there an external unforseen factor?
As you said, I doubt much to do with just few months of management can change the picture drastic. Many issues typically accumulated and only seen later after change in management perspectives.
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