3 Wise Views on Jardine Cycle & Carriage Ltd

Three wise men were blindfolded and led one at a time into a room where an elephant stood. Each was asked to discern what was in the room without removing his blindfold.

The first, upon touching the elephant’s trunk, concluded a “snake” was in the room. The second, upon contacting a leg, concluded a “tree” was in the room. The third, upon grasping the tail, concluded a “rope” was in the room. All were surprised to discover the elephant once their blindfolds were removed.

— old Indian fable

You may have heard this old fable before. The three blindfolded wise men were not able to make a good guess of the complete picture (in this case, an elephant). It can be the same with investing.

For any potential investment, our own view may be limited, and we may miss some major points. We could always do with more intelligent and Foolish perspectives.

To demonstrate, let’s use vehicle distribution giant, Jardine Cycle & Carriage Ltd (SGX: C07) as an example. Jardine C&C derives the majority of its revenues and profits from its Indonesian subsidiary, PT Astra.

While PT Astra’s main business resides in the Automotive market, it too has diverse sources of revenue as exemplified by its many business segments: Automotive; Financial Services; Heavy Equipment and Mining; Agribusiness; Infrastructure, Logistics and Others; and Information Technology.

You can read more about Jardine C&C in here.

With this company, I would like to share three possible views, from three differing investor personalities no less. They are the value investor, the income investor, and the growth investor.

The value investor’s view

At its closing price of S$36.03 yesterday, Jardine C&C carries a trailing price to earnings (PE) ratio of around 12. The attentive value investor may notice that Jardine C&C’s PE ratio is lower than the selfsame figure of 13.3 for the SPDR STI ETF (SGX: ES3). In this case, the SPDR STI ETF serves as a proxy for Singapore’s market barometer, the Straits Times Index  (SGX: ^STI).

Meanwhile, the conglomerate had US$1.9 billion in cash and equivalents and US$5.3 billion in borrowings as of the end of March 2015. This translates to a cash to debt ratio of just 0.36 and might not be the kind of balance sheet that would satisfy the more conservative value investor.

Would Jardine C&C’s share price be attractive enough now to compensate for the risk which comes with a weaker balance sheet? That would be the answer that the value investor might be digging for.

The income investor’s view

When it comes to dividends, Jardine C&C offers a 3.2% yield at a share price of S$36.03 thanks to its annual dividend of US$0.85 per share in 2014. That’s a decent yield, especially when we consider that the SPDR STI ETF has a yield of around 2.7% at the moment.

The income investor who’s looking at Jardine C&C’s recent payouts may not be impressed given that the firm’s dividends have declined in the past two years.

But, it’s worth noting that the company’s longer-term track record in growing its dividend is still very admirable (see chart below), the recent declines notwithstanding. This track record may be enough to pique the interest of the income investor to look further.

Jardine C&C Dividends

Source: Jardine C&C’s Earnings Report; S&P Capital IQ

Jardine C&C has also generated growing operating cash flow since 2010. Over the past two years, the company has even been able to produce free cash flow (see chart below; note how the operating cash flow has been higher than the capital expenditures). These traits help add some viability to the company’s dividend.

Jardine C&C OCF FCF

Source: Jardine C&C’s Earnings Report

Furthermore, the diversity of the company’s business segments may offer additional stability in its results and that’s something which may also catch the eye of the income investor.

The growth investor’s view

When it comes to the growth investor, he or she may be tempted by the company too – and for a good reason.

Jardine C&C Revenue

Source: Jardine C&C’s Earnings Report

The chart above plots the revenue changes in Jardine C&C’s two business segments. From 2009 to 2014, PT Astra, the larger segment, grew its revenue by a total of 78% – those are the kind of numbers a growth investor would like to see.

That said, we should also note that PT Astra’s revenue has fallen by 15% in the past two years. But as my colleague Stanley Lim notes:

“With a growing middle class in Indonesia and car-ownership being one of Indonesians’ greatest desires, it seems like there’s a lot more new business for Astra, and by extension Jardine Cycle & Carriage, to win.”

While competition is keen, there is indeed potential for Jardine C&C to grow. Add in a low PE ratio for the company (as mentioned earlier) and that may be enough to get the growth investor to dig in further.

Foolish summary

So, there you have it. Three quick perspectives from three different investor personalities looking at the same company. Thinking as different investor personalities and coming up with different views can be a useful exercise for us.

Collectively, the differing views may be worth much more than the sum of their parts.

So, do you – Foolish reader – have another company of interest in mind? Why not give the differing views approach a try yourself and then share it with us? We all may become better investors from sharing our motley views.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.