Would Warren Buffett Buy CapitaLand Limited?

Warren Buffett would be hard pressed to miss something as obvious as the construction industry in Singapore. There are buildings everywhere you care to look in the Garden City.

Even if you are a passive investor, who invests only through an index tracker, your exposure to property would be significant. No fewer than five companies are directly exposed to real estate and numerous others are indirectly connected to bricks and mortar.

But what would Warren Buffett make of CapitaLand (SGX: C31), one of Singapore’s biggest property companies?

CapitaLand is a profitable company. What’s more its bottom-line is not especially volatile, though it could be described as cyclical. Over the last ten years, Net Income has come in at around S$1.2b. In the last 12 months, the income was S$902, which is within a whisker of its ten-year average.

Net Income Margin is high. Currently it stands at 23%, which is considerably better than the average for Singapore’s blue chips. The median Net Income Margin for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 14%. That said, CapitaLand’s margin used to be much higher. In 2010, it made S$42 on every S$100 of sales. Today it is only about half that.

CapitaLand is not hugely efficient in terms of its Asset Turnover. But that is not too surprising for an asset-heavy property developer. Its Asset Turnover of 0.1, which lower than the blue chip average, is better than Hongkong Land (SGX: H78) but lower than City Developments (SGX: C09).

Gearing is part and parcel of property developing. But CapitaLand is not highly geared. Its Leverage Ratio is 1.9. That could help explain its relatively low volatility.

CapitaLand is also not too expensive when compared to its book value. With a market valuation of S$14.1b and a tangible book value of S$15.3b, the company is valued at a 10%.

CapitaLand ticks many of the boxes that Warren Buffett would like to see in a company. It is profitable, it is reasonably efficient and it is not too volatile. It could quite easily make its way onto a Warren Buffett watch list.

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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.