About 80% of the value of our estimate of the net asset value (NAV) of the Jardines is comprised of the following listed companies: HK Land, Mandarin Oriental Hotels, Dairy Farm, Jardine Lloyd Thompson and Astra. We discussed the merits of the largest of these businesses at our recent Investor Day.
As is typically the case, one often needs a little bit of market distress or company specific hair to buy a high-quality business at an attractive price. In the case of the “Jardines”, we got a bit of both earlier this year. The hair is the convoluted cross-shareholding structure that is confusing and requires some mental gymnastics to figure out what you are actually buying. Although he walks around our office barefoot at times, we don’t know if Contrarian analyst Chris Lozano will ever be mistaken for an Olympic gymnast, but he did gold medal work in disaggregating the financial statements of the various holdings so we could figure out what we were paying for this fine collection of businesses.
Throw in a small emerging-market selloff earlier this year and we had the ingredients to purchase what we viewed as a compounder with high-quality assets, an unlevered balance sheet and a long-term, owner-operator management team at the helm for a reasonable multiple of 12x earnings. On an NAV basis, this equated to discounts of 37% for Jardine Strategic (SGX:J37) and 28% for Jardine Matheson (SGX:J36), respectively, with Strategic being our larger holding due in large part to the greater discount.
Thanks to its management’s excellent stewardship, Strategic has grown its equity/share at a 22% rate over the past decade, more than 2x the 10% rate of the far better-known Berkshire Hathaway. We don’t know what the future holds but we think putting them in the same sentence as Mr. Buffet’s company is not unreasonable.
From Steven Romick (Trades, Portfolio)’s FPA Crescent Fund Second Quarter 2014 Commentary.