Would Warren Buffett Buy Singapore Exchange?

Warren Buffett can be said to be generous to a fault. He has such great belief in his own ability to make money that he is not afraid to tell others how they, too, can do it for themselves. There aren’t many money managers that have same level of self-confidence. He once said that he […]


SGX logo singapore exchangeWarren Buffett can be said to be generous to a fault. He has such great belief in his own ability to make money that he is not afraid to tell others how they, too, can do it for themselves. There aren’t many money managers that have same level of self-confidence.

He once said that he would never swing at a ball whilst it is still in a pitcher’s glove. In that one short sentence he highlights one his many selection criteria. He likes businesses that have been tested. In other words, he likes businesses that have a good track record.

So, how does Singapore Exchange (SGX: S68) figure in Buffett’s estimation.

Singapore Exchange has been around since 1999. So it cannot be described as being a ball still in a pitcher’s glove. Over the last ten years, revenue has grown from around S$211m to S$510m. Operating income has increased from about S$55m to S$433m.

The company boasts one of the highest Net Income Margins amongst Singapore’s blue chips. At 45% it is almost 2.5 times higher the average for the 30 stocks that make up the Straits Times Index (SGX: ^STI). A high margin could suggest a dominant position, which is one of Buffett’s favoured qualities for a good stock. Buffett also likes companies with low earnings volatility, which is another of Singapore Exchange’s attributes.

In terms of Asset Turnover, Singapore Exchange’s efficiency is slightly below the average for Singapore’s large cap stocks. At around 0.35 it is lower than the median for the 30 Straits Times Index companies. The company’s efficiency in generating sales from every dollar of asset employed has also declined gradually. It is down from 0.45 in 2010 to 0.40 in 2011 to its present value of 0.35.

Another of Buffett’s criteria for a good stock is low financial leverage. Singapore Exchange’s financial leverage is not especially high, though it is higher than the market average. The Leverage Ratio of 2.1 compares with 1.7 for the blue chip average.

Warren Buffett also pays close attention to low specific stock risk. In other words, he likes companies that have low share price volatility. In this regard, Singapore Exchange is ranks highly. Its share price volatility of 13% is below the blue chip average of 18%.

Singapore Exchange is likely to figure quite highly in Warren Buffett’s estimation of a good business. It ticks a number of important boxes notably its dominant position as a specialised operator in the Singapore financial market.

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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.