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ABB's Russian Vessel Deal Fails to Cheer Markets

Zacks Equity Research

ABB Ltd. (ABB) has been receiving key orders for its power segment in the recent past. Over the last 30 days, ABB has received contracts varying from powering the copper mine in Africa to signing a joint Industry Program with Statoil ASA (STO). During this period, the stock price has surged about 6.4%.  

However, the announcement of a contract win on Sep 19 failed to cheer investors’ sentiment and the shares dropped 1.04% on Friday, Sep 20. The company announced on Thursday that it has received an order worth $25 million to provide marine propulsion system, Azipod, and complete electric power plants for two new rescue and salvage icebreaker vessels owned by Russia’s State Maritime Rescue Coordination Centre (:SMRCC).

These two vessels are currently under construction at Nordic Yards GmbH in Germany. The SMRCC intends to use these vessels for patrols and rescue operations in offshore oil & gas fields. These vessels are specially designed for Arctic conditions and can perform rescue operations in waters which are covered by up to one meter thick ice.

The Azipod system is a special feature that allows ships with a complete 360 degree turn. The Azipod system is believed to be 5% to 6% better and more efficient than the traditional propulsion system. This is because the propeller is on the front of the pod and pulls the ship through the water rather than pushing.    

The scope of the contract requires ABB to supply 3.5 megawatt (MW) Azipod VI units, main switchboards, drives, bow thrusters and generators. The total power capacity of the vessel is 7 MW.

To date, ABB has invested heavily in Russia in order to shore up the country’s fast-growing offshore oil & gas activities in the Arctic. ABB has 27 offices in Russia along with five production sites, including a head office in Moscow. ABB has established dedicated marine centers in Moscow and St. Petersburg, supported by specialized marine service teams in Murmansk and Sakhalin.

ABB has been providing its Azipod propulsion system since 1990 and has so far supplied 60 units globally, out which 30 are for ice breaker vessels. According to the company, on an average two out of three high ice-class vessels install Azipod propulsion system.

ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering the environmental impact. The growing global investment in power distribution, both in mature and the emerging markets, is expected to aid ABB going forward. Recently, the company has been making strategic acquisitions to further strengthen its position in various emerging areas of the power industry.

ABB currently has a Zacks Rank #4 (Sell). However, some other companies operating in the similar industry and worth considering at the moment are Plug Power Inc. (PLUG) and AO Smith Corp. (AOS). Both these stocks carry a Zacks Rank #2 (Buy).  

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