What Would An Investing Legend Think Of ComfortDelGro Corporation Ltd Now?

Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), is down by 16% over the last 12 months. But, there are some stocks that have done relatively well over the same period and one of them is land transport giant ComfortDelGro Corporation Ltd (SGX: C52).

From 20 April 2015 to today, the price of ComfortDelGro’s shares have been essentially flat, moving from S$3.04 to S$2.93 currently. What might Benjamin Graham think of the company right now?

Graham is a legendary figure in the investing world. He has a great long-term track record as a fund manager, and billionaire investor Warren Buffett considers him as a very important mentor. That’s not all – Graham is also the author of two very influential investment books, namely, Security Analysis and The Intelligent Investor.

Unfortunately, it will be impossible to directly obtain any views Graham might have on companies in Singapore’s stock market as he had passed away in the late 1970s. But, he did develop a 10-point investing checklist during his investing career. Let’s run ComfortDelGro through the checklist to have an idea of how the company might look like in Graham’s eyes.

But first, here’s a brief background on ComfortDelGro. The company is one of the largest land transport companies in the world and its name is likely to be familiar with commuters in Singapore as it is involved with many modes of land transport such as buses, taxies, and rail systems. But, the company not only has a presence in Singapore – it also has land transport-related businesses in six other countries, namely, China, the United Kingdom, Australia, Malaysia, Ireland, and Vietnam.

With that, here’s ComfortDelGro and Graham’s checklist:

1. An earnings-to-price yield at least twice the triple-A bond rate.

An earnings-to-price yield is the inverse of the P/E ratio. ComortDelGro’s latest financials (for the 12 months ended 31 December 2015) show that it has an earnings per share of S$0.141. This translates to an earnings-to-price yield of 4.80% at the current share price.

Meanwhile, according to the Monetary Authority of Singapore, the 10-year Singapore government bond has a yield of 1.91%. Singapore currently has a triple-A credit rating from a number of credit rating agencies. Some basic number crunching will show that ComforDelGro’s earnings-to-price yield is 2.5 times the triple-A bond yield.

2. P/E ratio that is 40% or less than the highest P/E ratio the stock has had over the past five years.

The highest P/E ratio that ComfortDelGro has had in the last five years is 24 and that was seen in June 2015. As alluded to in Point 1, the company’s P/E is 20.8 right now, which is 86% of the peak P/E.

3. A dividend yield of at least two-thirds the triple-A bond yield.

Thanks to its current share price and an annual dividend of S$0.09 per share in 2015, ComortDelGro gets a dividend yield of 3.08%, which is higher than the yield of a triple-A bond as seen in Point 1.

4. A stock price down to two-thirds or less of the company’s net tangible assets (NTA) per share.

ComfortDelGro has a net tangible asset per share of just S$0.77, which is lower than its share price.

5. A stock price down to two-thirds or less of net current asset value (total current assets less total liabilities).

Given ComfortDelGro’s total current assets of S$1.28 billion and total liabilities of S$2.2 billion, the land transport company has a negative net current asset value.

6. Total debt less than net tangible assets (NTA).

ComfortDelGro has net tangible assets of S$1.66 billion, which is nearly thrice that of its total debt of S$569.5 million.

7. Current ratio (total current assets divided by total current liabilities) of 2 or more.

With total current liabilities of S$1.14 billion and an aforementioned total current assets of S$1.28 billion, some simple math leads to a current ratio of just 1.13.

8. Total debt equal to or less than twice the net current asset value.

We’ve seen in some of the earlier points how ComfortDelGro has a negative net current asset value while it has a positive total debt number.

9. Earnings growth of 7% compounded over the past 10 years (or a doubling of earnings over the past 10 years).

ComfortDelGro’s earnings per share in 2005 and 2015 are S$0.098 and S$0.141, respectively. This works out to be a compound annual growth rate of just 3.7%.

10. No more than two years of declining earnings of 5% or more over the past 10 years.

In the years stretching from 2005 to 2015, ComfortDelGro had seen its earnings per share decline by over 5% in just two years. They are 2007 (a fall of 9.2%) and 2008 (a fall of 10.6%).

To sum it up, ComfortDelGro has a score of just four out of a possible 10 using Graham’s checklist. As such, the legendary investor is unlikely to be interested in the company. But, it’s worth noting that investors with a different investing preference as compared to Graham can have a completely different opinion about ComfortDelGro – and that’s fine too.

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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 Esjay does not own shares in any companies mentioned.