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Would Warren Buffett Buy Global Logistic Properties?

GLPThere are a couple of ways of looking at Global Logistic Properties (SGX: MC0).

It could either be a straightforward asset play, in which case the price-to-book ratio would be the key criterion. Alternatively, GLP could be seen as a supply-chain infrastructure play, which might be more appropriate.

GLP builds and manages distribution facilities for clients in Brazil, China and Japan. Around 40% of its revenue was derived from China; 60% from Japan, while Brazil was still, largely, a work-in-progress as of last year.

The company is not too bad at generating a decent return for shareholders. That could be a positive for Warren Buffett – he likes efficient businesses. GLP’s Return on Equity (RoE) is around 7.5%, which is roughly in line with Singapore’s blue chips. The median RoE for the Straits Times Index (SGX: ^STI) is 7.9%.

Buffett also likes businesses with a strong balance sheet and low macroeconomic risk. In this regard, GLP fares well. Its Leverage Ratio of 1.4 is lower than the market average. Its low risk is reflected in its lack of stock-price volatility. Its volatility reading of 19% compares favourably with the market volatility of 17%.

Efficiency, as measured by a high Asset Turnover, is something that Buffett is likely to look for. That is not something that GLP is able to deliver, though. The company is asset-heavy. Or put another way, it has to spend a lot of money upfront building storage and warehouse facilities, which it then rents out over the long term to customers. Consequently, GLP’s Asset Turnover, which is about a sixth of the market average, is unlikely to impress Buffett.

GLP is also not cheap compared to its book value.  A price-to-book ratio of 1.2 would suggest that the company is value at a premium of 20% to its Net Asset Value. While that is not especially high, it might be high enough for Buffett to give it a miss.

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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.