Gloomy order outlook hounds Vard amid shake-ups in major markets

Privatisation is not yet likely.

With Vard’s two main markets badly affected(North Sea is one of the regions worst hit by oil price tumble and Brazil is embroiled in one of its largest graft scandals), analysts at CIMB have cut down their FY15 order forecast from NOK10.5bn to NOK6bn (some demand for IMR vessels).

Excluding construction loans, Vard is in a net cash position of NOK392m, down 49% yoy. This was due mainly to NOK467m cash collateral placed with a bank in relation to certain FX-derivatives for US$-construction contracts. With significant cash requirements expected for working capital, Vard has opted to conserve cash and not pay a dividend for FY14.

That said, Vard guided that its long-term dividend policy of a minimum payout of 3 0% remains unchanged. In addition, the group says that no provision for the Brazil tax claim (NOK200m) has been made in FY14, following advice from its legal counsel that a favourable ruling in the second or third appeal is more likely than not.

The stock has recently seen an uptick in interest as the argument of a possible privatisation surfaced. Analysts believe that the major stumbling blocks are the oil price uncertainty and Vard’s gloomy order/earnings outlook.

Privatisation would hinge on some certainty in the oil price and some indications of green shoots of recovery, both which are not expected in the next three months.

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