Investment Idea #26

Be Anything and Everything!

Following up from the last discussion, we shall analyze another Japanese company trading below book and generating strong free cashflow for the last few years. Again, this company piled up so much cash that it makes up almost half of its market cap. All this while its marketing team creates crazy commercials like the one below:

As usual, financial numbers are as follows:

Simple Financials (Mar 27 estimate, JPY)

• Sales: 80bn, OP: 5.2bn, Net income: 4bn

• EBITDA: 8bn, FCF: 5bn

• Dividend: 42 yen per share, Yield: 3.3%

• Debt: -28bn (Net cash), Mkt Cap: 57bn

Financial Ratios

• ROE: 5%, OPM: 6.5%

• EV/EBITDA: 3.6x (Mar 26)

• PER: 14.3x (Mar 26)

• FCF yield: 8.8%

These numbers are two years out and some improvement in earnings have to be incorporated for the valuation to be this cheap. That said, the assumptions are not aggressive and merely represents normalization and what is conservatively achievable. The firm has achieved this numbers in the past.