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Would Peter Lynch Buy Vard Holdings?

Vard logoWhat exactly does Vard Holdings (SGX: MS7) actually do?

That would probably be the first question that Peter Lynch would want to ask. Can the company’s operations be easily described using a crayon? And the answer would be an emphatic “yes”.

Vard Holdings builds ships. If you can name it, then Vard will probably be able to build it for you. It can build vessels that include subsea construction vessels, coast guard vessels and seismic vessels. It can also build cable-laying vessels, fishing vessels, forage carriers and even icebreakers.

In 2013, the company changed its name from STX OSV to its present name of Vard.

Name changes are always interesting. Or as Peter Lynch once said: “Corporations, like people, change their names for one of two reasons: either they’ve gotten married, or they’ve been involved in some fiasco that they hope the public will forget.” In the case of Vard, it is the former. The name change followed the sale of STX Europe’s majority stake in the company to Italy’s Fincantieri Oil and Gas.

Currently, Vard does not pay a dividend. By itself, the lack of a payout is unlikely to concern Peter Lynch too much.

However, Lynch likes to make sure that the valuation of a company is not too high and in sync with its earnings potential. Vard has been valued as low as eight times profits and as high as 24 times earnings, which is its current PE. That is unlikely to impress Lynch too much because he would ideally like to see the valuation below the long-term average. The earnings growth is far from ideal too. Bottom-line profits have a tendency to bob up and down unexpectedly.

Vard also carries a fair amount of debt on its book. It has short-term borrowings of S$5.8b; long-term borrowings of S$979m and cash of S$2.1b. That would put it in a net debt position of S$2.1b. What’s more, with only S$3.7b of shareholder equity, debt exceeds equity, which Lynch is likely to take a dim view of.

Vard is unlikely to make it onto Peter Lynch’s shortlist. Its valuation is probably too rich; its earnings are not steady enough and it is possibly carrying too much debt for Lynch’s liking.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.