Would Warren Buffett Buy Singapore Airlines?

Before we jump to conclusions or split our sides laughing it is important to go through the numbers to arrive at a considered opinion as to whether Warren Buffett would buy Singapore Airlines (SGX: C6L).

Just because Buffett has a well-publicised aversion to airlines, we can’t simply accept what we are told at face value. As investors, we should go carefully through the numbers ourselves.

So, would Warren Buffet but Singapore Airline?

Buffett likes businesses with low earnings volatility. Since 2004, SIA’s Net Income has been as high as S$2,129m and as low as S$216m. The median is S$1,062m with a standard deviation of almost S$700m. In other words, your guess as to next year’s bottom-line profit could be as good as mine.

A typical Buffett investment should also have high margins. SIA’s Net Income Margin (NIM) is, however, below the market average. At a median value of around 8%, the company makes around $8 on every $100 of revenues generated. However, the margin lacks consistency and predictability. Over the last 10 years, it has been as high as 14.7% and as low as 1.7%.

Interestingly, Singapore Airlines is quite efficient in the use of its assets. An asset turnover of 0.6 would suggest that the airline operator is able to generate sales of S$60 for every S$100 of asset employed in the business.

The company is not burdened with debt, either. Currently, it has net cash on its balance sheet, which would imply relatively low exposure to macroeconomic risk. Additionally, at a current market price of S$10.14, SIA is trading at 10% below its book value of S$11.22 per share.

Singapore Airlines is far from a terrible business. However, the lack of predictable earnings could be the deal-breaker as far as Warren Buffett is concerned.

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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.