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Would Warren Buffett Buy GuocoLeisure Limited?

If pedigree is enough to sway Warren Buffett, then GuocoLeisure (SGX: B16), should be a prime candidate for his watch-list. The company, which started life in 1961, was formerly known as BIL International – a company founded by entrepreneur Sir Ron Brierley.

But Warren Buffett needs more than good provenance. He wants to see a strong track record of strong numbers, starting with low earnings volatility.

Over the last 10 year, Net Income at the hotel-cum-casino-cum-oil and gas producer has swung from a high of S$147m to a low of S$19m. The bottom-line profits over the last five years have been more consistent, though.

Warren Buffett also like businesses that can demonstrate an efficient use of assets. GuocoLeisure has a median Asset Turnover of 0.24, which is lower than the market average. It means that the conglomerate generated $24 of revenues for every $100 of asset employed in the business. Conglomerates that include Keppel Corporation (SGX: BN4) and Jardine Matheson (SGX: J36) generate almost twice that.

Interestingly, GuocoLeisure is not highly leveraged. It has Total Asset of S$1.5b and Total Liabilities of S$426m, which implies a Leverage Ratio of 1.4. That is lower than the median Leverage Ratio for the 30 companies that make up the Straits Times Index (SGX: ^STI).

A final measure of suitability is a low price-to-book ratio. Currently, GuocoLeisure is valued at S$1.26b. It has a tangible book value of 1.48b, which could suggest that the market could be undervaluing the business by around 15%.

On balance, GuocoLeisure looks interesting. However, it could be better for a Warren Buffett stock if earnings were a little less volatile and a bit more predictable.

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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.