We maintain our Hold rating as we think that an earnings recovery is priced in, while risk-reward looks to be balanced. No changes to our target price (still at 9x CY15 P/E, the mean since its IPO) and FY14-16 EPS. We will re-visit the stock on stronger margins and orders.

Havyard IPO pricing does not inspire. Havyard&rsquo s IPO consists of 4.2m existing shares sold by the current majority shareholder, Havila Holding AS. The IPO pricing values Havyard at 5.4x CY13 P/E and 1.1x CY13 P/BV. In comparison, Vard trades at 14.8x CY13 P/E and 1.7x CY13 P/BV. (Read Havyard Prospectus)

 

Though we think that Vard deserves to trade at a higher premium (due to its scale and market leadership position), the wide valuation gap hardly inspires. Havyard vs. Vard. Havyard is a high-end shipbuilder and designer. The big-4 OSV yards in Norway are Vard, Ulstein, Kleven and Havyard. Over the last three years, Havyard generated an average turnover of NOK1.7bn (15% of Vard' s turnover) and achieved an average EBITDA margin of 13.7% (vs. Vard' s 12.8%). At 1Q14, its shipbuilding order book stands at NOK2.9bn (13% of Vard' s order book). Its net gearing stands at 0.5x vs. Vard' s 1.2x.

 

Perhaps what is more unpropitious is Havyard' s declining shipbuilding margins over the last three years, due to construction of riskier, prototype vessels. Typically, these vessels are subsea construction vessels. This point coincides with our argument that the impact of the product mix on Vard' s margins is a tricky one to decipher (see overleaf for details). Vard&rsquo s order book is skewed towards subsea vessels. 

 

Technical Analysis