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What Would A Legendary Investor Think Of Jardine Cycle & Carriage Ltd Now?

Credit: Simon Cunningham

Benjamin Graham is a legendary figure in the investing world. Not only is he an important mentor to billionaire investor Warren Buffett, Graham’s also the author of two highly influential investing texts, Security Analysis and The Intelligent Investor.

While it’d be impossible now to ask Graham about what he thinks of the companies in Singapore’s stock market (he had sadly passed away in 1976), he did develop a 10-point investing checklist during his investing career. Let’s run Jardine Cycle & Carriage Ltd (SGX: C07) through the checklist to find out what Graham may think of the company.

But first, here’s a brief background on Jardine Cycle & Carriage. Its business interests lie primarily in Indonesia through its ownership of just over half of Indonesian conglomerate Astra International. Astra’s main business is in the automotive industry, but it has a wide reach, with it being involved with agriculture, heavy machinery, mining and more

With that, let’s look at Jardine Cycle & Carriage through the lenses of Graham’s 10-point investing checklist (all data from S&P Global Market Intelligence unless otherwise stated):

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. Based on Jardine Cycle & Carriage’s latest results (12 months ended 31 March 2016), it has trailing earnings of S$2.28 per share. At the company’s current stock price of S$35.01, it thus has an earnings-to-price yield of 6.5%.

According to the Monetary Authority of Singapore, the 10-year Singapore government bond is yielding 2.0% at the moment. Singapore currently has a triple-A credit rating from a number of credit rating agencies. Evidently, Jardine Cycle & Carriage meets this criterion with an earnings yield that’s about three times higher.

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

Over the past five years, Jardine Cycle & Carriage’s P/E ratio had climbed to a high of 17.7. As alluded to in Point 1, the company has a P/E ratio of 15.4 at the moment, which is 87% of the peak valuation.

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

Jardine Cycle & Carriage’s dividend yield at its current price stands at 2.79% (based on an annual dividend of S$0.98 for 2015). This is higher than the 2.0% yield seen in the triple-A bond.

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

Jardine Cycle & Carriage’s net tangible assets stand at S$13.47 per share, which is lower than the company’s current stock price.

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

Jardine Cycle & Carriage’s current assets of S$11.49 billion and total liabilities of S$12.2 billion result in a negative net current asset value of S$0.73 billion.

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

Jardine Cycle & Carriage has total debt of S$6.74 billion, which is higher than the net tangible assets of S$5.32 billion.

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

As mentioned earlier, Jardine Cycle & Carriage has current assets of S$11.49 billion. While the company’s current liabilities of S$8.28 billion is lower, the figures give rise to a current ratio of only 1.4, which is short of Graham’s target of 2.

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

We’ve seen earlier how Jardine Cycle & Carriage has a negative net current asset value. In the meantime, the company 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).

From 2005 to 2015, Jardine Cycle & Carriage’s earnings per share had increased at a compounded rate of 6.32% from S$1.40 to S$2.58, falling slightly short of Graham’s standard.

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

The company has suffered a decline in earnings of 5% or more in four out of the last 10 years. The years in question would be 2006 (a 27.6% fall), 2012 (9.71%), 2014 (8.54%), and 2015 (13.15%).

As Jardine Cycle & Carriage has scored just two out of a possible 10 with Graham’s checklist, it would be unlikely for the legendary investor to like the company now.

But, it is important to understand that investors with a different investing preference to Graham can have a completely different view on Jardine Cycle & Carriage. 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 owns shares in Jardine Cycle & Carriage.