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What Would Warren Buffett Make Of Jardine Matheson Holdings?

Conglomerates don’t get much more sprawling than Jardine Matheson Holdings (SGX: J36).

The Hong Kong “Hong” has interests in engineering and construction, hotels through Mandarin Oriental (SGX: M04), supermarkets, motor dealership through Jardine Cycle & Carriage (SGX: C07) and property through Hongkong Land Holdings  (SGX: H78).

Size and diversification, they say, has its advantages. The pluses include stability, constancy and dominance. The drawback, however, could be possible sluggishness because all cylinders have to be firing to make a difference.

So, could Jardine Matheson’s size and stability tempt Warren Buffett?

Buffett likes companies with predictable earnings. Jardine Matheson comes through admirably. Its median Net Income Margin over the last decade was S$2.1 billion. Last year, it reported a bottom-line profit of S$2.5 billion. A high margin could be a sign that a company has pricing power.

A typical Buffett stock should also be efficient. Over the last ten years, the conglomerate has generated around S$73 for every $100 of assets at its disposal. This is quite high. Worryingly though, the Asset Turnover has shown signs of slipping. Last year it came in at 0.55, which was only slightly better than the market average.

A strong balance sheet can speak volumes. A company without too much debt is less likely to be battered by external events that are not within its control. Jardine Matheson has Total Assets of around S$69.1 billion and Net Liabilities of about S$21.6 billion. That equates to a Leverage Ratio of 1.4, which is below the market average. That could help explain the company’s low share-price volatility.

Jardine Matheson, which is valued at S$20.3 billion, is also trading at a 20% discount to its book value. There is a tendency for conglomerates to be valued at below their Net Asset Value, which appears to be the case here.

On balance, Jardine Matheson ticks many of the boxes that Buffett would like to see in a business. Perhaps the only fly in the ointment could be the declining Asset Turnover.

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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.