Singapore’s Big Loser for the Week: Vard Holdings Ltd

During the week, Vard Holdings Ltd (SGX: MS7) saw its shares fall by 22.1% from last Friday’s close to end Thursday at S$0.405.

Vard’s sharp decline pales in comparison with the Straits Times Index  (SGX: ^STI)’s gain of 0.7% to 3,386 points during the same timeframe. This makes Vard a big loser in the local share market for the week.

The company, which is headquartered in Norway, is a designer and builder of offshore and specialized vessels used in the offshore oil and gas exploration and production and oil services industries.

It debuted in our stock market in 2010 and is majority owned by a wholly-owned subsidiary of Italian shipbuilding giant FINCANTIERI S.p.A.

On 14 March 2015 (last Saturday), Vard announced that it was notified on 12 March 2015 that two partners of its customer, E.R. Offshore, have filed for bankruptcy in Germany.

Before it heard of the bankruptcy filing, Vard was still building one platform supply vessel each for the two partners. The following day after receiving the news, Vard terminated the two shipbuilding contracts it had with them.

This unfortunate development comes with a small silver lining – Vard has already received a 10% installment for one of the terminated contracts. And somewhat fortunately, the company expects to keep the prepayment already received and to be “able to sell the vessels at a price that will cover the expected construction cost less the prepayment received.”

During its results announcement for the financial year ended 31 December 2014 (FY2014) in late February, Vard said that the weakness in the price of oil has had sharp negative impacts on the exploration and production spending outlook for oil companies.

Due to the unfavourable market conditions, Vard added that “new order intake for 2015 is expected to be weak, although [its] existing order book ensures good revenue coverage for the majority of the year.”

Given the bankruptcy filings, it seems that the sharp decline in the price of oil which started last year has already taken its toll on some of Vard’s customers.

In 2014, Vard saw its revenue grow 15.8% to NOK 12.9 billion due to robust activity at its yards and with subcontractors. However, net profit attributable to shareholders slipped slightly by 2.2% to NOK 349 million.

The firm is now trading at 8 times its historical earnings.

Learn how to make money through investing with a FREE subscription to The Motley Fool's weekly newsletter, Take Stock Singapore. Sign up now for FREE. 

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