Thursday 9 April 2015

Analysis of Kvaerner

Kvaerner, a Norwegian oil and gas industry subcontractor

Company: Kvaerner

ISIN NO0010605371 | WKN A1JA47

Business: A Norwegian oil and gas industry supplier and subcontractor. Kvaerner is one of the world’s leading contractors for delivery of complete offshore platforms and onshore plants for oil and gas upstream projects. They provide six products and services: Jackets (steel substructures for oil and gas extraction), Topsides (the part that holds the offshore rigs together), Concrete Solutions (marine concrete constructions), Onshore Oil & Gas Facilities (receiving and processing of oil related products), Decommissioning Services (of installations) and finally Piping Technology (preforming and welding of pipes).

Active: Own claim... world wide.

P/E: -23.0

This company was analysed due to a request from John posted on the Analysis Requests page. 

contrarian values of P/E, P/B, ROE as well as dividend for Kvaerner

The P/E of Kvaerner is bad due to losses and ended up with -23.0 but the P/B is however excellent with 0.7. Still we get a no go from Graham due to the year of loss. Earnings to sales as well as ROE turns out bad due to loss. The book to debt ratio is a bit too low for my liking with 0.5.
In the last five years they have had a very poor growth rate of 1.1% which is bad news and it gives us a motivated P/E of 8 to 10.
Even though they made a loss, most likely to keep their institutional investors happy, they still decided to pay a dividend that is paid out each half year. In total they are up at 22.2% which is insane. in the last three years they have paid out more in dividend then what they have earned and they will look over the dividend policy in 2015.

Conclusion: Graham says no and so do I. In my opinion their dividend policy is not sustainable and they need to make a dramatic change to it. When they do then I fear that the share price will respond accordingly. So the P/E, ROE etc all look bad. The P/B looks good as do the dividend but the dividends are, at least in my opinion, a fairytale. I would be careful to invest in Kvaerner. I do however think that a contrarian moment can appear when they decide to cut the dividend and the institutional investors leave the boat each one attempting to leave faster than the other one but before then I would not touch this one.

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Anonymous said...

Thank you for this analysis.

Fredrik von Oberhausen said...

You are welcome. Sorry that I could not paint a pretty picture of Kvaerner but there could still be values and benefits that I just do not see with my contrarian analysis.

John Magic said...

Thx, interesting. Pretty pictures of companies are in no short supply, it often more interesting with defensive analyses.

I was thinking maybe the liquidation value is quite high. I don't know how to calculate that though. (Equity-Intangible assets)/#shares = 5.52 NOK. But I have no idea of what the equity represents in reality. Quite a bit of it cash, but that might be eaten by the liabilities.

Anonymous said...

Hi John,

the liquidation value appears ro be lower than the market cap of the company. Usually one should count with, i think it was, 50% of the tangible assets since the price of assets at such sales drops significantly.

The biggest problem in such cases are the management that hardly ever accepts liquidation. They are not men/women enough to own up to the facts.

-Fredrik von Oberhausen