I have always liked the sound of the phrase "initiating coverage". It reminds me of some movies I watched before where a person in a war room would be standing ready to press a red color button while announcing "initiating launch sequence now". Quite exciting.
Well, talking about Vard Holdings might not create the same kind of excitement for some readers especially for those who have bought the stock at much higher prices. For sure, there is no paucity of BUY calls from analysts on Vard Holdings.
I remember replying to a reader a couple of months ago that we could see a rebound because of a positive divergence but with the downtrend intact, share price could go lower.
In yesterday's session, Vard Holdings' share price hit a new 12 months low of 83c. So, is share price at the start of a recovery today? This is a question I do not have the answer to. However, technically, there is no reversal signal. So, if share price should trend lower, it would not surprise me.
If it should trend lower, a critical support would be at 79c, the low formed in October 2011. Remember, this is what I see in the chart and it does not mean that it will happen.
Of course, there is always a possibility of a sharp rebound in which case, we could see a gap covering at 96c or a test of gap resistance at 99.5c.
Fundamentally, it is quite easy to see why there are so many BUY calls.
Doing a quick valuation exercise, at 83c a share, Vard Holdings does not seem expensive. In fact, it seems quite cheap now. I went through the numbers and its 1Q FY13 EPS works out to be 3.37c. Annualising this and using a PER of 7x will give us a value of 94.5c while a PER of 8x will give us a value of $1.08. Why 7x or 8x? Well, that is the kind of PERs we are looking at with smaller yards like ASL Marine and Marco Polo Marine.
So, at 83c, Vard Holdings is actually trading at an even lower valuation compared to smaller yards? Yes, that would seem to be the case from a price earnings perspective.
If we believe that the demand for OSVs is on the rise, then, Vard Holdings should be a logical beneficiary. However, we should bear in mind that although the stock might seem like a compelling buy, share price could weaken further. So, unless we are mentally prepared for such a possibility, it might be better to wait for clearer signs of a reversal.
After all, Vard Holdings did issue a profit warning due to higher than expected cost overruns at its Niteroi yard as well as higher than expected start-up costs at its new yard, Promar, which was what sent its share price diving.
Related post:
Marco Polo Marine: 1H FY2013.
Note:
Vard Holdings Limited ("VARD") will release its financial results for the second quarter and half year ended 30 June 2013 after market closes on Thursday 11 July 2013.