No turnaround in sight for Vard after net profit sank 91% in Q3

Blame big losses in Brazil and several cost overruns.

Vard proved to be a disappointment to both shareholders and analysts alike in the third quarter. The shipbuilder’s core net profit plunged 91% year-on-year to $1.14m (NOK6m), impacted by cost overruns in some European projects and widening losses in Brazil.

According to OSK DMG, a turnaround is unlikely for Vard in the near term as management has guided for “below average new order intake expected in the near to medium term” as the deepwater segment faces uncertainties over investment levels, asset utilisations and charter rate.

“We believe Vard could secure one or two more orders this year, but a slowing order momentum could delay a return to healthy profitability that would be necessary for the stock to recover. Given that the average order wins in the last three years were NOK11.6bn, management could be guiding for order wins below replacement levels for the next two years,” noted OSK DMG.

Meanwhile, CIMB notes that while Vard’s earnings margin might revert to positive territory of 5.1% in 4Q14, the snail-paced recovery is unlikely to excite investors.

“We continue to anticipate that the subsea segment will underpin order momentum. However, we expect the subsea order trend to be skewed towards light construction support vessels and ROV support vessels, rather than heavy-duty subsea construction vessels or pipelay vessels (the orders for which Vard has been securing), after two years of robust contracts. The North Sea PSV market is well-supplied, although there may be some orders for hybrid-PSV vessels with subsea capability. In our view, the North Sea AHTS market remains erratic and the particularly soft summer will not inspire orders,” noted CIMB.