Singapore’s Big Loser For The Week

Vard Holdings Limited (SGX: MS7) is one of the big losers this week in the Singapore’s share market. The share price of the global shipbuilder and offshore vessels owner lost 7.3% since the close last Friday to its current price of S$0.825 per share. In contrast, The Straits Times Index (SGX: MS7) only lost 0.5% for the same period.

One reason for this fall could be due to the fact that Vard Holdings Ltd  might be facing an unexpected tax penalty. Earlier this month, Vard Holdings Limited announced that it has been served a notice from the Brazilian authorities for a tax claim of about NOK200 million (S$39.6 million) from an unresolved tax issue in FY2010. The tax claim was due to a conflict with Brazilian transfer pricing rulings. However, these rules have been aligned from FY2013 going forward.

From the company’s latest report, it made a net profit of NOK190 million for the interim year. If the NOK200 million tax claim is confirmed, that might wipe out the company’s net income for the first half of FY2014. That is a rather hefty liability for the company.

Furthermore, the performance of the company has not been impressive lately. Its operating profit fell 10.8% year on year for the first half of this year. The company also has a relatively leverage balance sheet, with a net debt to equity ratio of 107% as at 30th June 2014.

Fortunately, the management is seeing opportunities in the North America market through its recent acquisition and integration of Vard Marine. If the company is able to expand its market through the new company, we might see Vard Holdings becoming a more globalized company.

Foolish Summary

Vard Holdings Limited has some short term risk with its possible penalty from the Brazilian authorities. Furthermore, its business has been under strong competition and decreasing margins. Unless the company is able to turn the company around, the bad news coming from Vard Holdings might only be just the beginning.

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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 contributor Stanley Lim does not own any companies mentioned.