Would Warren Buffett Buy ComfortDelGro?
If I had to find one word to describe Warren Buffett’s style of investing it would have to be “boring”. Buffett likes predictable businesses, with predictable managers, generating predictable earnings.
What can be more humdrum than a transportation company such as ComfortDelGro (SGX: C52)? The company runs most of Singapore’s taxis. It also has a stake in bus operator SBS Transit (SGX: S61) and vehicle-testing company Vicom (SGX: V01). So whether you cab it, bus it or get behind the wheel of a car yourself, you are contributing to the coffers of ComfortDelGro.
Those regular contributions that we make to ComfortDelGro help to generate an almost-predictable bottom line. That is something that Buffett would probably like to see. In 2009 net profit was S$220m; in 2010 it was S$228m; in 2011 it was S$235m and in 2012 it was S$249m. Last year it was S$263m. No prizes for guessing that analysts are forecasting profits of around $280m for next year.
ComfortDelGro’s margins are not excessively high but they are predictably consistent. At around 7%, its Net Income Margin is about half that of the Singapore’s blue chips. The median Net Income Margin for the Straits Times Index (SGX: ^STI) is around 15%. That said. ComfortDelGro’s margin has varied by less than 1% over the last four years.
It will not come as a huge surprise to discover that ComfortDelGro shares are not volatile, either. The volatility of 17%, which is in line with the market, would imply that the company is not exposed to unexplained macroeconomic risk.
The transportation company’s dependable margin coupled with its above-average efficiency and modest leverage has helped it to generate an acceptable Return on Equity. At 9.6%, ComfortDelGro has delivered S$9.60 for every $100 of shareholder equity, which is slightly higher than the market average.
There is, however, one piece of the ComfortDelGro’s jigsaw that might make Buffett think twice. At $4.1b, the company is valued at almost twice its book value. That leaves little on the way of margin of safety. On the one hand, Warren Buffett might choose to bite the bullet given that the other attributes look favourable. Alternatively, he might wait for the moment when the market is fearful about something, which tends to happen from time to time.
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If I had to find one word to describe Warren Buffett?s style of investing it would have to be ?boring?. Buffett likes predictable businesses, with predictable managers, generating predictable earnings.
What can be more humdrum than a transportation company such as ComfortDelGro (SGX: C52)? The company runs most of Singapore?s taxis. It also has a stake in bus operator SBS Transit (SGX: S61) and vehicle-testing company Vicom (SGX: V01). So whether you cab it, bus it or get behind the wheel of a car yourself, you are contributing to…