Would Warren Buffett Buy Golden Agri-Resources?

Palm oil, which is the main business of Golden Agri-Resources (SGX: E5H), is something that is always in demand. That is unlikely to change any time soon. We use it in food stuffs, we use it in our personal-care products and we also use palm oil as a source of bio-fuels. A healthy product demand […]


Ser Jing - Golden Agri-Resources First Quarter Results (pic)Palm oil, which is the main business of Golden Agri-Resources (SGX: E5H), is something that is always in demand. That is unlikely to change any time soon. We use it in food stuffs, we use it in our personal-care products and we also use palm oil as a source of bio-fuels.

A healthy product demand could pique the interest of Warren Buffett. But how do the fundamentals of the company stack up?

Buffett likes companies with low earnings volatility. That is not one of GAR’s key attributes, though. Over the last ten years, operating income has been as high as S$1.1b and dipped as low as S$197m. Net Income has been all over the shop, too. At the moment, the trailing twelve month bottom-line profit is below the long-term average of S$950m.

Interestingly, GAR’s gross margins are reasonably stable. Even though palm-oil producers are price-takers rather than price-makers, GAR’s gross margins come in at between 20% and 30%. However, the Net Income Margin can be erratic.

Efficiency is one of the hallmarks of GAR. Its Asset Turnover 0.5 implies the company generates around S$0.50 for every dollar of asset employed in the business. Peers First Resources (SGX: EB5) and Indofood Agri-Resources (SGX: 5JS) generate S$0.34 and S$0.37 for every dollar of asset employed, respectively.

First Resources is not heavily leveraged. While the S$6.6b company does carry net debt of S$2.8b, borrowings are small in comparison to shareholder equity of S$10.9b. Its Leverage Ratio of 1.6 is slightly below the market average of 1. 7. The shares are not especially volatile, either. The volatility of 22% is only slightly above the market median.

Palm oil producers are not exactly the flavour-of-the-month right now. That could help explain Golden Agri-Resources’ low price-to-book ratio. At S$0.51, the company is valued at a 40% discount to its Net Assets. That might just interest Buffett, especially when there is a thrice-covered historic dividend yield of 2% on offer.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

Get FREE Issues of TAKE STOCK

Want to keep up with our investing thoughts as they develop? Don't miss a beat! Just drop your email in the box below and we'll keep you up to date.

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.