Vow

This morning, Vow announced a modification order for a hybrid heating system on a hot-dip galvanising furnace for LCC Group. The contract value is NOK 24m, with delivery expected in 2024. The hybrid system will essentially allow the furnace to operate at full capacity, utilizing both electric power and gas heating, while running entirely on renewable energy. Once installed, the furnace will be the largest of its kind in the world.

This morning, Vow announced that the company has been awarded three contracts in its Industrial segment (through its subsidiary CH Evensen). The total value of the contracts is NOK 17m, with the largest (NOK 10m) being for a FEED for a major international pyrolysis project. Crucially, the award of this project paves the way for a larger process equipment contract, according to the company. The other two contracts included the supply of the company’s electrical hot dip galvanizing furnace to a global market leader in material science (furnaces are set to be delivered to the client’s manufacturing facilities in Brazil and China).

This afternoon, Vow announced that it has been awarded a retrofit contract with a major (undisclosed) cruise line company. The contract holds a contract value worth USD 5m (around NOK 50m), which as we have it takes Vow’s maritime order backlog to around NOK 690m taking H1 levels as a base. With regards to specifics, Vow will supply and install its state-of-the-art wastewater purification systems, with the delivery of process equipment and onboard installation scheduled for 2024.

Vow's H1 results showed encouraging performance in both the Maritime and Aftersales divisions; however, the limelight was taken by a very soft Industrial segment, which drove group EBITDA down by over 40% y/y. We adjust our model to account primarily for the Industrial segment's results and an uptick in corporate costs (we lower 2023 EBITDA by 33%), although we stress that the lumpy nature of the Industrial financials is short term, with a rebound on the cards. Our estimate changes result in a lowering of our fair value range to 34-39, although we highlight significant upside with the established Maritime segment covering the entirety of current share levels. With strong Industrial datapoints to come and long-term financing in place, we believe the future looks bright for Vow. Therefore, we see a good entry point once the dust settles. Marketing material commissioned by Vow.

Vow posted all-time high HY revenues this morning, registering group sales of NOK 449m (3% above NDA estimates, 1% below company-compiled consensus), 12% up from a year earlier and driven by strong results in Maritime (28% y/y growth) and Aftersales (77% y/y growth). However, down the P&L the company penned in NOK 30m in group EBITDA, >40% below consensus and representing an EBITDA margin of 6.6%. The main driver for the miss was the Industrial segment, which posted EBITDA margins of -0.3% (NOK -0.5m EBITDA vs NOK 25m a year previous) and reflected the lumpy nature of the division (the company notes delayed confirmation/announcement of Industrial projects as well as significant capacity build-up in anticipation of new orders). Other segments came in broadly in line on the margin front, thus meaning a beat to consensus in Maritime and Aftersales. Elsewhere, corporate costs came in 16% higher than cons., while the group orderbook (exc. Options) came in at NOK 1.15bn (vs. NOK 1.26bn NDA est).

Vow will report its Q2 2023 results on 23 August. We pencil in sales of NOK 435m (up 14% from H2 2022 levels) and an EBITDA margin of 12.1% for H1. We expect the report to focus on the high-growth Industrial segment, where a project milestone has given rise to a back-end loaded year, and Maritime benefitting from strong commissioning activity. We make minor negative adjustments to our group-level estimates in the near to medium term (i.e. ~2% lower EBIT for each year), but this does not affect our SOTP-based fair value range of NOK 36-41. Vow's EBIT-positive characteristics and current share price imply almost no value attributed to the Industrial segment; we still see Vow as a strong choice in the Cleantech space. Marketing material commissioned by Vow.

This morning, Vow announced that the company’s record USD 27m contract for a Biochar/renewable energy system (announced in May 2022) has now obtained all required permits. Given this, the project has now moved into the procurement and construction phases. Equipment delivery will now begin next quarter (Q4 2023), with commissioning expected in early 2025 (c. 15-18 month delivery time). As a reminder, Vow’s deliverables for the 6,000 tonne per year biochar production plant include four BioGreen pyrolysis reactors, as well as some upstream/downstream equipment.

Vow published its Q1 update on 9 May, posting a 14% beat to company-compiled consensus on the top line and a 4% beat on EBITDA. Segmentally, Vow noted all-time-high activity in Maritime (formerly Cruise), with Aftersales also rebounding 88% y/y. We adjust our estimates accordingly, resulting in 3% and 2% revenue uplifts for 2023E and 2024E, respectively. However we soften our margin forecasts, resulting in, respectively, 2% and 5% decreases for the same years. Our estimates imply an unchanged SOTP-based fair value range of NOK 36-41, with the value of the established Maritime segment more than covering the entire share price level at present. Combining this with a more than 30% share price drop YTD, an unwarranted share price fall on the day of the Q1 report, and more than a 50% discount to Nordic cleantech peers on an EV/EBITDA basis, we see good value in Vow. Marketing material commissioned by Vow.

Vow released its Q1 2023 trading update this morning (as a reminder, the company reports semi-annually), posting a 14% company-compiled consensus beat on the top-line and 4% at the EBITDA level. Group revenues came in at NOK 236m, 29% up y/y and 25% up q/q driven by a strong consensus beat in the cruise segment. Aftersales also bounced 86% y/y, while landbased came in 11% above consensus. At the EBITDA level, group EBITDA beat consensus by 4% (NOK 26m), however increased corporate costs as well as compressed cruise margins contributed to a 1pp EBITDA margin miss vs. consensus. The order backlog was 1.2bn excl. options, with the number driven by a 58% increase in the landbased segment. Going forward, the company notes strong newbuild activity in the cruise segment (now named maritime) and several opportunities arising in the land-based segment (now named industrial).

Vow will publish its Q1 update on 9 May (the company reports semi-annually). In summary, we expect to hear of positive developments in the Cruise and Aftersales segments, with Q1 results expected to reveal 15% and 60% y/y growth, respectively, for the first half of the year. On the Landbased side, we see strong growth potential in 2023 (~30% y/y growth for 2023E), although we expect this growth to be more back-end loaded for the year. Going forward, we trim the 2023E top line by 3% and build in a slower EBITDA margin uplift. However, our tweaks are insignificant for long-term value changes, and our fair value range remains at NOK 36-41 per share. Marketing material commissioned by Vow.