Vard struggles with new order drought in as deepwater uncertainties intensify in Q3

Its share price has crashed 28% since June.

Vard Holdings is struggling with a dearth in new orders for the third quarter, on the back of intensifying deepwater uncertainties and lower oil prices.

According to Maybank Kim Eng, Vard may end 3Q14 with only around $59m (NOK 0.3b) of order intake, compared to over $533m (NOK 2.7b) in Q2.

“Despite its near-term order drought, a net order book of NOK21.6b should offer sufficient revenue coverage in FY14E-15E. The industry’s push for oil production should revive demand for OSVs. A 28% retreat in its share price from its last peak (SGD1.16 on 11 June 14) has likely priced in its negatives, including its Brazil tax and Promar gestation, in our view. We believe Vard’s recovery is intact, albeit slower than expected,” stated the report.

Here’s more from Maybank Kim Eng:

Margins could surprise in FY15E from operating leverage, as we expect revenue to rise to NOK15b from its historical NOK11-12b a year.

Current 1.0x forward P/BV valuation is akin to its trough in Jul 2013 when Niteroi issues first surfaced. But Vard is in a better shape today. Reiterate BUY. FY14E-16E EPS cut by 5-10% for lower orders and margins. TP trimmed to SGD1.15 from SGD1.25, still at 1.4x P/BV, -1SD of its 4-year mean.

We sense a more cautious order outlook in our recent conversations with Vard. As orders have slowed since July, Vard may end 3Q14 with only NOK0.3b of order intake (1Q14: NOK5.2b, 2Q14: NOK2.7b). 

We think customers are withholding their commitments because of deepwater uncertainties and lower oil prices. We cut FY14E new orders from NOK12.8b to NOK11.5b (YTD NOK8.2b). We keep FY15E-16E at NOK12.8b pa on expectations that oil production will spark a return of OSV demand.