Jardine Matheson

Jardines

Ticker: JMHLY, Buy below $60.

Why I Would Buy

  1. Access To High Growth Markets – Jardine Matheson is a conglomerate that operates businesses in South-East Asian markets such as Indonesia, Singapore, Hong Kong etc. Newer investments are in hard-to-access, hyper-growth countries such as Myanmar and Vietnam.
  2. Astute Capital Allocation – Management has displayed strong skills at initiating and expanding ownership in businesses at extremely opportune times. Examples include: scooping up a 50% stake in Indonesia based Astra during the Asian financial crisis, and entering into joint ventures in Myanmar at the first sign of market liberalization there.
  3. Diversified Business Mix – The mix of businesses under the Jardine umbrella are awe-inspiring: real-estate, auto dealerships, hotels, restaurants, palm oil plantations, construction, engineering and more.
  4. Strong Returns on Equity – Jardine Matheson has averaged an impressive 11+% RoE during the past 5 years. Although there are signs of a slow down at Indonesia based Astra, their recent forays into Thailand and Myanmar shows potential for maintaining the high returns.
  5. Fair Price – The Company trades at about 12 times earnings and 1.1 times book.

What Could Go Wrong

  1. Convoluted Shareholding Structure –The conglomerate has a puzzling shareholding structure: Jardine Matheson holds ownership in many of its underlying business via a 83% stake in an intermediate holding company called Jardine Strategic. Jardine Strategic in turn holds a 56% stake in it’s parent Jardine Matheson! Look at the graphic below to see this strange looped shareholding:JardinesComplexHoldings
  2. Dynastic LeadershipThe Company is run by a single family – the Keswicks. The family projects a controlling influence over this conglomerate although it possess only 14% of voting rights. Jardine Matheson does not have professional management, rather the senior-most leadership is dynastic and is derived entirely from the Keswick family.
  3. Currency Risk –JM transacts business in various South-East Asian currencies, these are emerging market currencies and could move in any direction or degree relative to the USD.

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