Factoring this in, we raise our FY13-15 EPS by 3-7%. Our target price, still at 9x CY14 P/E (mean since IPO), rises on our EPS upgrade. However, until investors are fully convinced that execution hiccups in Brazil are fully over, we think a sustained re-rating is unlikely. Hence, our unchanged Neutral rating.

Vard has secured an order for four pipelay support vessels (PLSVs) worth NOK6.5bn (US$1.1bn) from the DOF Subsea-Technip JV. Once constructed, these vessels will be chartered out to Petrobras. Two of the vessels, of the VARD 3 05 design, will be delivered from Vard's European operations in 2Q16 and 3Q16 respectively. Another two, of the VARD 3 16 design, will be delivered from Vard Promar in 4Q16 and 2Q17 respectively. 

The VARD 3 05 vessel will be larger with higher specs. It will measure 151m in length and 30m in breadth, and will carry pipelay towers rated at 650 tonnes. The Brazilian-built VARD 3 05 vessel will measure 139.9m in length and 28m in breadth, and will have 340-tonne capacity.

What We Think

Vard has clinched NOK10.5bn of orders YTD, meeting our target of NOK11bn for the year. We now raise our target to NOK14bn. Owing to fierce competition, we believe margins for the four vessels could be on the lower side, though not diluting the group?s blended profitability too much. We retain our EBITDA-margin expectations of 8% for FY14 and 9% for FY15.

Vard has a longstanding relationship with DOF-Technip and is the first and only yard to have successfully delivered two Brazilian-built PLSVs. We think the win demonstrates that Norwegian yards still have a competitive edge in high-end offshore production. Given its recent execution hiccups in Brazil, we are also comforted that the Brazilian-built vessels will have a longer delivery lead time.

Stay Neutral on a 12-month horizon. We would revisit the stock on stronger orders and earnings. (Read Report)