Would Warren Buffett Buy Singapore Post?

What can be more predictable than a postal service such as Singapore Post (SGX: S08)? It could just the kind of business that Warren Buffett would welcome with open arms.

But does it have all the right credentials to be a Warren Buffett stock?

Buffett likes companies with low earnings volatility. In other words, he prefers businesses that have predictable earnings. SingPost’s Net Income is, by and large, quite predictable. Since 2004, the median bottom-line profit is S$159 million. Last year it was S$158 million.

Net Income Margin has been around 28%, which is probably high enough to meet Buffett’s requirements. However, it did slip to 16.2% last year, which could be concerning.

Buffett also expects his companies to be efficient. SingPost’s Asset Turnover is around the market average of 0.54. Put another way, it generated around S$50 of sales on every $100 of asset at its disposal. Revenue has also grown gradually over the last decade. That is a positive.

Currently, Singapore Post has S$2.5 billion of Total Assets. It also has S$966 million of Total Liabilities. That equates to a Leverage Ratio of 1.6, which is in line with the market average. A low Leverage Ratio could shield Singapore Post from external shocks such as interest rate increases.

Perhaps a little worrying is the sharp drop in the company’s Free Cash Flow. It had risen steadily from S$114 million in 2004 to S$204 million in 2014. But last year, it dropped to S$130 million.

On balance, Warren Buffett would probably put SingPost on his watch list. He might wait for signs of an improvement in the Free Cash Flow before making a call.

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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.