Earlier today, I had looked at three important questions that billionaire investor Warren Buffett would ask when he’s looking at a business. These questions are found in Robert G. Hagstrom’s book on Buffett, “The Warren Buffett Way,” and they are as follows: Is the business simple and understandable from your perspective as an investor? Does the business have a consistent operating history? Does the business have favourable long-term prospects? With that in mind, let’s take a look at ComfortDelGro Corporation Limited (SGX: C52) and see if it has what it takes to ace Buffett’s questions. The business: Not as simple as…
Earlier today, I had looked at three important questions that billionaire investor Warren Buffett would ask when he’s looking at a business.
These questions are found in Robert G. Hagstrom’s book on Buffett, “The Warren Buffett Way,” and they are as follows:
- Is the business simple and understandable from your perspective as an investor?
- Does the business have a consistent operating history?
- Does the business have favourable long-term prospects?
With that in mind, let’s take a look at ComfortDelGro Corporation Limited (SGX: C52) and see if it has what it takes to ace Buffett’s questions.
The business: Not as simple as it seems
ComfortDelGro is in the business of providing public transport services, which might seem simple enough.
But, if you analyse the company’s businesses in detail, it’s actually more complex than you might think.
ComfortDelGro has operations in seven countries, with the important ones being Singapore, the United Kingdom/Ireland, Australia, and China. The firm also has eight different business segments: Bus; Bus Station; Rail; Taxi; Automotive Engineering Services; Inspection & Testing Services; Car Rental & Leasing; and Driving Centre.
That wide geographical and operational spread is not where the real complication resides – the complications lie in how ComfortDelGro’s business model for the same type of business would differ amongst the various countries it’s in.
A good example is found in ComfortDelGro’s Taxi segment. In Singapore, the firm’s taxi operations consist of it owning taxis and renting them out to drivers. Meanwhile in the United Kingdom, the firm’s taxi business consists of the company providing only the radio circuit system used by taxi drivers – it’s a type of a business that requires a much lesser amount of assets as compared to what’s happening in Singapore.
Therefore, for Buffett’s first question, ComfortDelGro does not exactly have a simple to understand business model. But that said, the firm’s operations are certainly still comprehensible if an investor is willing to spend some time with the details of the business.
A consistent operating history
ComfortDelGro has a consistent operating history. Since 2002, the firm has achieved a return of equity of at least 10% in each calendar year and has never experienced even a single year of losses.
Over the past five years, ComfortDelGro’s revenue and earnings have grown at an annual clip of more than 5% each. In fact, both the firm’s top- and bottom-lines have been experiencing steady growth since at least 2002; you can see this in the chart below:
Source: S&P Capital IQ
Bright long-term prospects
There are likely to be better days ahead for ComfortDelGro. The need for public transport will only increase as the economy and population of the countries the company is in grows.
Moreover, as more and more cities face issues with overcrowding traffic and congestion, public transport would serve as a great alternative over private vehicle use.
With ComfortDeGro’s consistent operating history and bright future prospects, it might just be a great investment candidate.
But, we need to bear in mind that its business is not as simple as one might think and it would serve us well if we spend some time to better understand its multiple business models first. In addition, the issue of valuation and the firm’s financial strength would also have to be considered.
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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 writer Stanley Lim doesn’t own shares in any companies mentioned.