Investment Idea #31 - Potential Privatization Candidate!
"Two all-beef patties, special sauce, lettuce, cheese, pickles, onions, on a sesame seed bun."
Some of us might remember this iconic jingle from MacDonald’s in the 1970s to 1980s.
"Two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun!" There was also some kind of challenge which if you could say this under four seconds, you get a free burger or something. Isn’t that fun? By the way, this is all true and this actually happened. Well, that’s MacDonald’s back in the early days. Today, it is the most successful restaurant business in the world (market cap >USD200bn) and related to our investment idea today.
Today, we return to discussing a Japanese activist stock. This is one of the more interesting businesses we have encountered in Japan. This company operates the de-facto platform for restaurant owners and restaurant jobseekers in Japan. Alas, 99.99% of all restaurants will never be like MacDonald’s. As restaurant owners would know, restaurants are treacherous cut-throat businesses where fortunes are made and lost. Mostly lost.
But owning a platform supporting restaurants, that’s profitable and free cashflow generative. Private equity folks love these platforms.
This company began operations in 2003 and has been listed since 2016. It created the #1 restaurant platform eco-system in Japan over 22 years and has been through COVID-19 and recovered. Share price is near its COVID-19 low and hence looks interesting. Let’s look at the simple financials.
Financials (Estimated for Mar 26)
Net Sales: JPY4bn, OP: JPY1.1bn, Net Income: JPY0.7bn
EBITDA: JPY1.1bn, Free Cashflow (FCF): JPY0.8bn
Earnings Per Share (EPS): JPY28, Dividend: JPY15 per share
Net Cash*: JPY5bn, Market Cap: JPY16.8bn
*Net Cash: Cash + Securities - Shares in subsidiaries - Short-term debt - Long-term debt
Financial Ratios (Estimates)
ROE: 14.7%, ROA: 12.5%
GPM: 82%, OPM: 28%
EV/EBITDA: 10.8x, PER: 21.0x, PBR: 3.2x
FCF Yield: 5.4%, Dividend Yield: 2.7%
Two activists (or perhaps three) have already bought into this name with the top two owning teens percentages, all of which added together is >33% and owner has also sold down his holdings similarly to teens percentage. This makes the stock a potential take-private candidate and hence our interest in discussing it today!
