Vard Holdings rose for a third consecutive day to $1.13 yesterday, gaining 4.6% over the same period where the benchmark STI has lost 0.8%. While yesterday’s close was also a 11.3% rebound from its recent low a month ago, the stock is still sitting on a year-to-date loss of 13.1%.

In a research report released on Tuesday, Macquarie Equities Research (MER) commented that most investors they met seem to appreciate that the stock looks quite attractive at current valuations and market expectations have upside risk. MER believes that orders will be the trigger and believes a few large ones may be announced soon.

Below are the excerpts from the research note MER published on 28 May after meeting with investors and Vard’s management on a road show in Hong Kong last week:

Order guidance of “at least” NOK12bn: Street is estimating NOK10bn-11bn of orders in 2013. MER thinks VARD is set to surprise the street.

- Approximately NOK4.5bn of orders already done
- Expecting a minimum of NOK12bn which could go up to NOK15bn
- Expecting OSCV market strength to continue
- Expecting a few customized large hybrid vessel orders
- Expecting AHTS market to bounce strongly in 2H13
- Expecting 1-4 Petrobras vessel orders to the tune of NOK1.5bn-5bn

Brazil issues are limited to 4 vessels; under control by end-2013: Out of the five vessels, one was delivered last week while execution is on track for other four to be delivered on time as per the new schedule. Staff has been brought over from Romania and Norway, while some work has been outsourced. Management changes have also been done at the Brazil yard.

Competition will intensify, but Vard staying ahead in the race through investments in technology: More than the Chinese yards, Vard sees Korean and Japanese yards as a threat as they become more desperate due to lack of orders in their core markets. But MER thinks Vard is keeping ahead in the race through innovation and technology (like recent expansion in Romania and Vietnam yards to be able to build more customized and large vessels).

New owner a better fit; has ambitions to grow the company: The new owner is taking active interest in growing the company, as indicated by the new investments in Romania and Vietnam. In addition, the new owner has yards in the US and Middle East, where Vard has no presence, and can now expand its reach

Action and recommendation
Investors bottom-fishing: Most investors MER met seem to appreciate that the stock looks quite attractive at current valuations and market expectations have upside risk, but seem to be bottom-fishing.

Orders will be the trigger; few large ones might be announced soon: MER expects Petrobras orders and a few OSCV orders to be announced soon, which should lead to street upgrades of 2014 and 2015 profit estimates.

MER has an Outperform rating on Vard and a 12-month target price of $1.82.

Source: Macquarie Research - 30 May 2013