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How Jardine C&C Could Have Paid For Your Mercedes-Benz
In economics, the term giffen relates to goods which see increased consumption as their price rise, thus defying the law of demand. Similarly, giffen can be used to describe car ownership in Singapore where more people continued to own cars despite the price gains.
On a spectrum of surplus, such increase in car ownership has definitely bode well for car dealers as they raked in higher sales volume. This was especially the case for Jardine Cycle & Carriage (JCC) whose revenue jumped a good 37.8 percent between the five-year period of 2013 and 2009.
Further, a quick glance on the statistics of car sales from different marques in Singapore between 2009 and 2013 revealed that Mercedes-Benz, which is one of the marques retailed by JCC in Singapore, consistently came in within the top three in terms of sales, with Toyota and BMW filling the other two.
For some, the presence of two luxury marques falling within the top three categories might not have been a surprise considering that Singapore has the highest proportion of household millionaires in the world (17.1 percent).
The grill of a Mercedes-Benz
What If I Am A Savy Investor
Recalling the word associating game which was played during my university studies, someone would exclaim “Cars!” when the word “expensive” was requested for association. Indeed, an entry model from Mercedes-Benz or BMW in Singapore would easily come at a hefty price tag of $200,000.
What if instead of spending $200,000 for a Mercedes-Benz, one has taken side with JCC and ploughed this sum of money into the company’s shares in 2009? Shares of JCC were trading at an average price of $18.41 in 2009. As at 1 April 2014, JCC’s share price closed at $45.57. Correct, that investor would have bagged a more than 2-fold gain, expanding his capital to as much as $500,000.
What’s more, between the five-year investment horizon, an investor would have been compensated by a payout of $68,791.87 in accumulated dividends. At the current juncture, this translates into an impressive yield on cost of 7.4 percent, more than twice the average dividend yield of component stocks on the Straits Times Index (JCC is also one of the index’s constituents).
What I Would Do
Now, it wouldn’t be too much for an investor to offload $200,000 worth of JCC shares and subsequently purchase a newer, updated model of a Mercedes-Benz, essentially owning it for free. While, the ongoing dividend payout would be more than enough to offset the miscellaneous costs such as petrol, insurance, parking and maintenance costs for driving the vehicle, and even fund a return trip to Germany to observe how the car is manufactured.
Investment Merits
Diversified automobile business with a deep presence in Asia.
Good and long track record of dividends payout.
Strong balance sheet with consistent return on equity and return on assets.
Investment Risks
Under JCC’s portfolio, there are some non-performing marques.
The automobile industry is highly competitive.
Regulations in the Singapore automobile industry could further erode margins from car dealers.
SI Research Takeaway
The aforementioned merely demonstrates an example of how an investor can channel investment returns to fund their expenditures. Peter Lynch, one of the greatest investors said “If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.”
Regardless of how trivial something might be such as glimpsing at news on the newspapers or grocery shopping, by paying closer attention to things happening around us, an investor can be better armed. This allows one to potentially discover consumer trends, get ahead of the horde and take advantage of opportunities which can yield handsome rewards.
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