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Would Warren Buffett Buy Jardine Cycle & Carriage?

Jardine_Cycle_&_Carriage_LogoWhat is there not to like about Jardine Cycle & Carriage (SGX: C09). The stalwart of the Straits Times Index (SGX: ^STI) has delivered a total return of 939% over the last 20 years. That equates to an annual total return of 12%. But would that be enough to impress the greatest investor of our lifetime, Warren Buffett?

Buffett likes companies with high margins. Unfortunately, a high margin is not something that Jardine C&C can point to as one of its prime attributes. The company’s Net Income Margin came in at 4.6% last year, which was only marginally higher than the previous year’s. In fact, the highest it has been over the last four years was 6%, which is less than half the median margin of the 30 companies that make up the benchmark index.

Earnings at the company, which distributes cars in Singapore, are not especially volatile. If anything, there has been a gradual improvement in Jardine C&C’s bottom line over the last five years. It has risen from S$645m in 2008 to S$1.2b in 2013. That is likely to be seen as a positive by Buffett.

Buffett also likes efficient companies. Now, that is something that Jardine C&C can boast of. Its Asset Turnover of around one would imply that it is generating one dollar of revenue for every dollar of asset employed in the business. That is more than double the market average.

Another thing that Buffett is likely to have an eye on would be low specific stock risk. In other words, he likes businesses with low operating leverage that could withstand external shocks such as interest-rate hikes. Jardine C&C doesn’t fare too badly in this area either. Its Leverage Ratio of 1.9 is too dissimilar to the market average of 1.7, which would suggest that it is not overly indebted.

However, Jardine C&C’s shares can be quite volatile. A volatility of 31% would imply that its shares can be twice as volatile as the market. Additionally, at $47 a pop, the shares are more than twice its book value.

On balance, we can probably conclude that while Jardine Cycle & Carriage might be a company that has delivered a good return for shareholders, Warren Buffett is unlikely to reach for his chequebook and pen.

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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.