Would Warren Buffett Buy SATS Ltd?

Just about every person that passes through Singapore’s Changi airport is likely to have come into contact with one or more of the services provided by SATS (SGX: S58). And yet most air travellers have probably never heard of the company.

That is testament of the efficiency of the company.

But SATS is not only efficient in the way that it performs its ground-handling duties. It is also very efficient in the way that it makes use of its assets. That is likely to get the nod of approval from Warren Buffett.

SATS generates $88 of revenues from every $100 of asset employed in the business. That is extraordinarily high, when the average for Singapore’s blue chip is around half that.

The company, which also provides in-flight catering services, delivers quite predictable earnings too. That is another thing that Buffett would like. Over the last ten years, SATS has generated around $181m of bottom-line profit. In 2013 it was S$185m. Last year it was S$180m.

High margins are something else that Warren Buffett would like to see. SATS used to boast quite high Net Income Margins. Ten years ago they were as much as 20%. But today, 10% appears to be the norm. That is not quite as high as the average margin of 14% for the 30 companies that make up the Straits Times Index (SGX: ^STI).

SATS has around S$101m of debts. But it also has S$358m of cash too. That means it has Net Cash of around S$257m, which is a comfortable cushion, given the impending threat of higher interest rates. The low interest-rate risk could explain SATS’ relatively low share-price volatility.

SATS appears to tick many of boxes for a Warren Buffett stock. But the shares are not cheap compared to the book value. At S$3.20 a pop, it is valued at around three times book value.

That doesn’t leave much in the way of margin of safety. But we need to remember that SATS only runs Changi airport – it doesn’t own it. Would that be enough to convince Warren Buffett? I think it might.

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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.