Vard (formerly: STX OSV)

[Clement]

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.

That's what I thought too, part of the warned depressed margins might be due to management choosing to recognize "foreseeable losses" on the Brazilian contracts in q2. It is to be expected that STX would not have recognized them as they were trying to sell the company. But this is all speculation, we will only know when the results are released.