Would Benjamin Graham Buy Jardine Matheson Holdings?

Jardine Matheson Holdings Limited (SGX: J36) is a diversified business group with activities focused primarily in Asia. The company’s interest includes businesses that are leaders in various fields from engineering and construction to restaurants and luxury hotels.

Examples of the Group’s portfolio include household names such as Dairy Farm (SGX: D01), Mandarin Oriental (SGX: M04) and Jardine Cycle & Carriage (SGX: C07)

With a broad range of interests the Jardine Matheson Group is expected to perform well, almost regardless as to which areas of the economy might be doing well.

This is certainly reflected in the company’s earnings yield of 7.2%, which is roughly three times the risk-free return currently available on 10-year US Treasury Bonds.

Less inspiring, though, is the dividend yield. With Jardine Matheson paying out roughly one third of its earnings, investors only get to enjoy a 2.3% dividend yield. This is lower than the yield on a risk-free investment.

Capitalised at close to S$55b, Jardine Matheson is the second-largest company listed on the Singapore Stock Exchange. The mammoth value prices the company at around a 20% premium to its book value. A value that is likely to deter value investors.

The company is not too heavily indebted. Its total debt is around a-third of its book value, which is likely to please followers of Benjamin Graham.

However, the current ratio of just 1.3 may be slightly disconcerting. A value of one does suggest that the company is able to meet its debt repayments. But a more convincing current ratio would be greater than two.

Compounding Jardine’s woes is the contraction in its net income between 2011 and now. From highs of around S$5b in 2011, the net income has dropped sharply to below S$2b for the last 12 months. This represents a fall of over 60%, or annualised falls of over 25%.

The measures of value make for uninspiring reading at the moment. It could, however, suggest that better opportunities might present themselves later on.

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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 contributor Adam Kuo doesn’t own shares in any companies mentioned.