What Happened To ComfortDelGro?

ComfortSingaporeOn 22nd May this year, ComfortDelGro’s (SGX: C52) largest shareholder, Singapore Labour Foundation (SLF), sold its 12% stake in the company for about S$332m.  The following day, ComfortDelGro  lost 13% of its value, falling from $2.18 cents the day before to close at $1.93.

As a shareholder, would you react? Would you sell your shares to mitigate your losses or hold on to the shares?

When making a decision like that, it’s important to not get swayed by emotions and consider whether or not the business fundamentals have changed.

Let’s take a look at the case of ComfortDelGro.  Firstly, as far as profits are concerned, ComfortDelGro has not failed to increase its profits for the last four years, with an average growth rate of 5.5%.  The company was also able to maintain a 12% return on equity for the past five years. In more recent news, the company announced a 6% increase of first quarter profits last month. Not bad at all.

2008 2009 2010 2011 2012
Net Profit ($m) 200 219 228 235 248
Return on Equity (%) 12.8 12.9 12.6 12.4 12.3
Gearing Ratio 0.8 1.0 1.1 1.1 1.1

Of course, numbers alone might not be enough to tell the whole story of a business. Take a stroll down the road, and you will see ComfortDelGro’s blue Comfort and yellow CityCab taxis busily ferrying passengers to their destination. The company also owns 75% of Singapore’s largest public bus and rail operator SBS Transit Ltd (SGX: S61), and 60% of vehicle inspection business, Vicom (SGX: V01).

The transport company is also looking to expand internationally, announcing an acquisition on Driver Group Pty Ltd (subjected to regulatory approval), for approximately S$27 million on 20May. According to the company, “it will further boost ComfortDelGro Cabcharge’s presence in Australia where it already operates bus services in both New South Wales and Victoria.”

As investors, it is important to view ourselves as business owners of the underlying companies. As Benjamin Graham, the mentor of Warren Buffett, put, “Investment is most intelligent when it is most business-like.”  So take a closer look at the business before you decide whether or not to sell a company’s shares.

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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 Ivan Looi doesn’t own shares in any companies mentioned.   

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