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Three Things To Like About Vard Holdings

Vard logoIt is probably easier to remember the name Vard Holdings (SGX: MS7) than STX OSV, which was the former name of the shipbuilder.

That, by the way, is not the first thing to like about the company, though it probably should be. After all, STX OSV is hardly a memorable name nor one that easily rolls off the tongue

The first thing to like about the company, though, is its versatility. The company builds ocean vessels of all shapes and sizes. Whether a vessel goes on, through or under water, Vard can build it. Its manufacturing flexibility goes some way to account for the stability of its annual turnover, which has remained fairly constant even at a time when demand for ships has not.

Vard is also quite efficient – it generates S$0.85 in revenue for every dollar of asset employed in the business. That is the second thing to like about the company. Its Asset Turnover is on a par with Sembcorp Marine (SGX: S51) and nearly twice that of Yangzijiang Shipbuilding (SGX: BS6) and COSCO (SGX: F83).

The third thing to like about Vard is its high Return on Equity (RoE), which is better than the market average. Last year Vard generated $10 of profit for every $100 of shareholder equity. The RoE for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 8.5%.

Worryingly, though, Vard’s Return on Equity has deteriorated from around 40% in 2011 and 20% in 2012 to about 10% today. Much of the decline can be traced to its worsening Net Income Margin, which means the company is making less bottom-line profit for every dollar of revenue. Vard’s Return on Equity last year is still something to admire. However, if its Net Income Margins continue to weaken, then that might be a reason for concern.

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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.