Friday, 17 January 2014

American Express - what a model...but i don't have one of their cards or hold their shares

You have got to say that Warren Buffett can pick 'em.  I am grateful to this link for informing me that Mr Buffett bought American Express shares for the first time in 1964.  He has made a multiple billion Dollar (unrealised) gain since.  What a trade. 

American Express is still firing on all cylinders.  Take these three charts from their presentation pack. 

Growth in regional billing...

...operating expense control has been very strong...

...and in the last couple of full years, over 80% of the capital generated by the company has been returned to shareholders (via dividends and - mostly - buybacks)

That is a strong combination.  But look what has happened to the share in the last year.  Its near 50% rise has taken the valuation to nearly x5 book for a company that just announced a 28% return on equity.  Or an EV/ebit or P/E estimated ratios of around x16.  That's a full valuation whatever way you look at it.

So I am not going to be joining Mr Buffett on the shareholder list today.  Great model, wrong price today.  As was noted in the link above it is all a question of buying the strong franchises when they are at an anomalous price...for whatever reason. 

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