I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business has been operating for more than 100 years.

It sells everyday food products through some of the largest retailers in Japan.

Revenue is stable, margins are improving, and profits are growing.

Management has increased the dividend by 50% over the last few years and has started buying back stock.

I also believe the business can sustainably generate roughly ¥1.5b in Owner-FCF each year, on average.

That puts the entire operating company on sale for around 3x cash-earnings.

That’s usually enough to stop me scrolling.

But then I discovered the company also owns an income-producing property portfolio.

The value of the property isn’t disclosed but the annual rental income is.

Using a fairly ordinary 6% yield, I estimate those properties are worth around ¥15b.

That’s more than 3x the EV acquisition cost.

That EV calculation includes almost ¥14b of liquid, cash-like financial assets.

Crucially, the ownership structure doesn’t block an activist from coming along to unlock all this value.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business is so cheap, I couldn’t stop staring at it.

It has my favourite combination of cheap to assets AND cheap to earnings.

Obviously, there are a few little quirks to it.

First of all, it’s a Singaporean nano-cap, listed on the Australian exchange.

Secondly, the chairman controls over 50% of the votes, and is still involved in managing the business.

This instantly rules out my preferred set up where an activist could theoretically build a controlling stake.

However, there isn’t really any need to do this, as far as I can tell.

The management have far more of their future wealth-generation tied up in equity than they receive in salaries.

And, they have also been acting like rational owners in recent years (because they are).

Crucially, they seem very aligned with the rest of the shareholder base, and they clearly understand that the stock of their business is mispriced.

And, what a mispricing it is...

Here are the ratios:

TBV = 0.43

EV/FCF = 3.57

P/FCF = 4.7

This tells us that we can acquire the tangible assets (cash and property) at a significant discount, and get the operating business for free.

In fact, the property alone is worth more than today’s market cap.

And that operating business is far from worthless.

In fact, if we bought the whole business at today’s price, we’d make our money back in under 4 years, while still holding all that property.

This implies the business is already dead, which is strange because it objectively isn’t.

When I started digging into the financials, I found that all divisions are profitable, the balance sheet is net-cash, and the business remains comfortably profitable even when when revenues contract.

In other words, the business looks decent, but the price looks absurd.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

We can buy today’s business for around $800m.

It owns $2.52b of inventory, $348m of cash, and generates roughly $100m of average annual Owner-FCF.

But that’s not why I find the set up interesting.

If I bought this business whole, I would focus on extracting excess cash and then operating the remaining business.

After running the numbers through my big-buttoned calculator, it looks like there is around $300m in extractable cash hiding in the balance sheet.

That would leave me with an effective cost of around $500m.

I’d also be left with a business still capable of generating roughly $100m of average annual Owner-FCF.

This is nice, because we’d get paid back in around 5 years and keep everything else for free.

Management is also building a capital-light asset-management business that already manages $3.4b and generates recurring fees using mostly other people’s money.

This is one of those free things we’d get thrown in.

I’m assuming no growth from it whatsoever.

I never do.

The existing assets and earnings are enough.

Anything that happens with the future business is purely the cherry on the cake.

Let’s take a look...

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s Japanese business has increased total revenue from roughly ¥14b to almost ¥24b since FY2022.

It has also spent years building a much larger presence in the US, where revenue grew another 58% last year.

That US operation has also just turned profitable.

They’ve previously been ‘burning cash’ to get the operation up and running and fund the expansion.

But it’s now bearing fruit.

The whole business has been operating for over 70 years.

After my usual adjustments, it generates around ¥1b per year in total owner-FCF.

We can buy it today for a total market cap of around ¥9.31b.

After adjusting for debt-like obligations and liquid assets, the enterprise value is around ¥5.47b.

This gives us our ratio of 5.5 or a FCF yield of just under 20%.

There is an additional margin of safety in the tangible assets too.

The entire business trades at just 0.9x TBV, which essentially gives us the operating business, and all its future profits for free.

Obviously there are problems, this is Japan.

Profits are lumpy, and management has absorbed losses while establishing that US business.

But, after having a good look through the reports, it definitely looks like a serious mispricing to me.

Let’s take a look...

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Every so often I stumble across a situation that looks too good to be true.

This is one of those.

Including all liabilities, we’re effectively being paid to take ownership of the operating business.

The strange thing is that the operating business hasn’t stopped working.

It still generates around €11m of annual revenue.

It still produces consistently positive owner-FCF.

It has virtually no financial debt.

The people running the business, and the original founder, still own a large stake, but don’t block anyone else building control.

This is a story that began more than a decade ago.

It’s one of a deliberate restructuring designed to create a lean, cash-flowing business with a fortress balance sheet.

I find this particularly interesting because that business is now being given away for free.

Let’s take a look...

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Imagine being offered an entire company for ¥9.98b.

Inside the business are net-tangible assets that are be worth around ¥15.5b in an orderly, real-world sale (0.65x TBV).

There is virtually no debt.

The operating business generates roughly ¥800m of sustainable owner-FCF each year, on average.

The enterprise value is ¥4.08b.

This works out at just 5.1x owner-FCF.

Or a cash yield of almost 20%.

The business has operated for 76 years.

Revenue, OCF, and Owner-FCF are all higher than they were five years ago.

Its products are embedded inside important manufacturing processes and customers still need what it sells.

But todays price implies that the operating business is worthless and will be dead in roughly 5 years.

The company is also buying back shares below tangible value and cancelling them.

Most interestingly, the ownership structure is not permanently locked behind a controlling family or entrenched management.

There is enough genuine free float for an activist to build influence, particularly if gradual market purchases are combined with an off-market deal for an existing block.

Let’s take a look...

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

The UK has around 440 homes for every 1,000 people.

France has 556.

Germany has 511.

The Netherlands has 495.

The EU average is 542.

Even after adjusting for empty properties and second homes, Britain still has materially fewer available homes per person than almost all European countries.

Depending on the method used, the housing shortfall is somewhere between 2.1m and 6.5m homes.

This shortage has been building for decades.

In fact, to close that gap by 2040, the UK needs to accelerate new-builds to over double the current rate, immediately.

The centre for policy studies showed that people in London earn 17% more than the median UK worker, but after rental costs, they are actually 3% worse off.

The pain of the shortage is almost palpable.

At the same time, the companies capable of building homes at scale have become more entrenched.

Large housebuilders produced around 13% of English housing completions in 1980.

By 2024, their share had risen to roughly 35%.

The number of small housebuilders has fallen from 12,215 in 1988 to around 2,500 today.

No genuinely new company has reached the top tier of UK housebuilding in roughly half a century.

The newest major incumbent was founded in 1974.

Planning delays, access to land, financing requirements and rising regulation have made the industry harder to enter.

It actually reminds me of trying to launch a fund or money management business.

The largest companies can spread technical, legal, environmental and compliance costs across thousands of homes.

They buy materials nationally.

They operate large planning departments.

They control land pipelines that would take a new entrant decades to recreate.

Britain needs millions more homes.

The companies capable of producing them sit behind some of the strongest barriers to entry in the UK market.

You’d expect these businesses to be expensive.

They are not.

Barratt Redrow, the UK’s largest housebuilder, is a classic example.

The business ended FY2025 with net-cash and a land bank containing approximately 100,000 plots.

Its TBV was around 437p per share.

The shares were trading at roughly 260p.

You can buy £1 of stated land, inventory, cash and other tangible assets for approximately 60p.

Taylor Wimpey is very similar, as are smaller operators such as Watkin Jones.

It seems almost endemic to UK housebuilding companies.

But, the market is applying these discounts indiscriminately to businesses operating in the midst of a desperate shortage, with virtually no new competition.

Call me old fashioned, but that seems a bit strange.

Or, perhaps the market is right.

The land could be overstated.

Margins could remain below the cycle average forever.

Mortgage affordability could stay weak.

Remediation costs, taxes and regulation could continue absorbing cash.

And cheap deep-value investors like me could just stay in their parents’ basements, and stop buying houses.

But still, the current valuation seems a bit….negative.

It’s pricing actual land and houses as being worth half their stated value while the actual operating business of housebuilders will never generate any profit ever again.

After researching multiple housebuilding companies, this disconnect only seemed to look more absurd.

So, I thought I’d try and figure out what was going on…

Subscribe now

What Needs To Be True?

A share price below TBV does not automatically create an opportunity.

I’ve seen enough cash-burning, biotech freakshows and family controlled, Japanese manufacturing businesses to know that much.

A business that earns a 5% return on capital should be worth considerably less than one capable of earning 15%.

For the current valuation of Barratt Redrow (and the rest) to make sense, its assets must be worth less than stated, its future returns must remain poor, or shareholders will never receive the value.

The current housing downturn gives the market plenty of evidence to support that view.

Completions have fallen.

Margins have compressed.

Mortgage affordability remains stretched.

Builders are using incentives to help buyers complete purchases.

Legacy building-safety obligations continue consuming cash.

The difficult part is figuring out how much of this is permanent.

Subscribe now

The Current Cycle

A typical UK first-time-buyer-property costs around £230k.

The households actually buying these properties have an average gross income of approximately £65k.

The property therefore costs around 3.5x household income, with mortgage payments consuming roughly 24% of take-home pay.

That may sound manageable.

But the deposit is often the hardest part.

A 10% deposit requires approximately £23k before legal fees, surveys, moving costs and furnishing the property.

More than a third of first-time buyers now receive help from their families.

This explains why higher mortgage rates have such a large impact on new-build demand.

A relatively modest increase in monthly repayments can remove thousands of buyers from the market.

Housebuilders then reduce production to match the lower sales rate.

This is happening despite a continued need for housing.

A young couple living with parents may still want their own home.

A family renting a property that is too small may still want to move.

They just can’t actually do it with all the extra interest and tax costs.

Affordability has taken a hit in recent years, but there are some signs that it’s stopped getting worse.

Real wages have grown faster than real house prices since 2023, while lenders have gradually increased the flexibility available to some borrowers.

Buyers just need monthly payments to become affordable again.

That can happen through lower mortgage rates or taxes, higher wages, lower house prices, or some combination of all three.

Subscribe now

Unofficial Demand Is Larger

Housing demand is often discussed in terms of population growth.

But it’s worth looking at the concept of household formation.

One family of four needs one home.

Four adults living independently may require four homes.

An ageing population tends to create more one-person households.

Children eventually leave home.

Couples separate.

People marry later.

Older partners die at different times, leaving the survivor living alone.

The number of homes required can actually increase even when population growth slows.

Japan provides a useful example.

Its population began declining, yet the number of households continued to rise.

Britain has many of the same demographic pressures, but its overall population is actually increasing.

Official household-formation figures probably understate the underlying demand because a household cannot form without somewhere to live.

The official statistics only record the households that successfully formed.

They cannot directly count every household that would exist if suitable housing were available at an affordable cost.

This is why weak completions should not be confused with a lack of demand.

Britain can have a large housing shortage and a weak new-build market at the same time.

It looks like we are seeing exactly that right now imo.

Subscribe now

Just Build More houses

If I owned a large UK housebuilder, I’d be on the phone to my CEO telling them to build more homes and cash in on this pent up demand.

Sadly, as with all regulated industries, it’s not that simple.

The biggest constraint is obtaining permission to build.

Only 29% of English councils had an up-to-date local plan in late 2024.

These plans determine where new homes can be built.

When they become outdated, land allocation slows and individual applications face greater uncertainty.

Planning departments are also under-resourced.

Applications can take years.

Environmental requirements change.

Infrastructure agreements must be negotiated.

Local opposition creates further delays.

A piece of land suitable for housing is not automatically developed land.

Its value depends heavily on whether planning permission can be secured.

The process favours companies with established planning teams, local knowledge and the capital required to wait.

Regulation creates another advantage.

Compliance costs are often fixed at the site level.

A national builder can spread those costs across hundreds of homes.

A small builder operating one or two small sites cannot.

The largest businesses also negotiate national material contracts, maintain in-house legal and environmental teams, and control land pipelines that smaller competitors struggle to match.

The 11 largest builders collectively hold around 1.1m plots.

These advantages make the largest housebuilders difficult to replace.

Skanska is a good example.

The Swedish construction group launched Homes by Skanska in 2011.

It planned to bring Scandinavian design, sustainability and customer service into the UK housing market.

Within two years, it closed the entire operation.

Its CEO explained that housebuilding tied up large amounts of capital and required that capital to turn over quickly to generate acceptable returns.

Skanska had construction expertise, access to finance and a well-known international brand.

Even with all that, it couldn’t break into the UK house-building market.

Capital-backed modular builders also promised to manufacture homes more efficiently in factories.

Several launched and then collapsed after consuming large amounts of cash without reaching sustainable scale.

The incumbent builders have spent decades assembling land pipelines, regional teams, supplier relationships and planning expertise.

This illustrates the absurd nonsense of the UK industry, but it also reaffirms the value of the incumbent businesses.

Subscribe now

The Industry’s Returns

A cyclical business should be judged across a complete cycle.

Housebuilder profits rise sharply when selling prices increase, build costs remain controlled and volumes are strong.

They also fall quickly when those conditions reverse.

Looking only at the best years produces an inflated view of economics.

Looking only at the current downturn produces the opposite mistake imo.

The Competition and Markets Authority collected twenty years of financial information from 12 large UK housebuilders.

That period included the global financial crisis, the collapse in mortgage availability, the pandemic and the beginning of the current interest-rate downturn.

Across the full period, the industry produced an estimated average return on capital of around 18% before tax and 14% after tax.

Removing the single best and worst years barely changes the average.

Removing the three best and three worst years actually increases the post-tax return.

Every rolling five-year period remained profitable, including the years covering the worst housing downturn in a generation.

Over the twenty years to 2022, the industry generated more than £64bn of cumulative operating profit.

Someone investing from 2003 to 2022, including distributions and remaining capital, earned an estimated annual return of around 14%.

This seems incredible when you look at current stock prices and sentiment on Fintwit.

These results came from companies that supposedly produce an undifferentiated product, operate in a terrible industry and have no meaningful competitive advantage.

The historical record shows that these assumptions are basically just wrong.

Large UK housebuilders have operated as profitable, cyclical businesses serving a supply-constrained market.

Subscribe now

Why Profits Collapse So Quickly

Housebuilding contains considerable operating leverage.

Land is normally purchased years before the finished home is sold.

The builder then commits money to roads, drainage, planning obligations, labour, materials and site overheads.

Many of these costs cannot be reduced immediately when demand slows.

A home that was sold in 2025 may sit on land purchased several years earlier under completely different assumptions.

This creates a delay between changing market conditions and the reported financial results.

A relatively small movement in selling prices or construction costs can produce a much larger movement in profit.

Generally speaking the normal operating pre-tax margin of the largest housebuilders is around 18%.

Taylor Wimpey targets 21%, and has averaged roughly 16% over the last cycle.

Barratt Redrow is similar.

Because land and overhead costs are largely fixed, a 5% to 10% movement in price or build costs can have 2x to 3x the impact on the margin.

This works in both directions.

A small increase in selling prices can create a large recovery in profits.

A small decline can destroy them.

That volatility is one reason people tend to be terrified of housebuilding stocks.

It also makes trough profits a poor estimate of what the business can earn across the full life of its land bank.

Subscribe now

Land Takes Most Of The Pain

Housebuilders normally decide what they can pay for land using a residual calculation.

They estimate the revenue from selling the completed homes.

They deduct construction costs, infrastructure, overheads and the profit margin required to justify the project.

The amount left is the maximum value of the land.

When house prices rise faster than construction costs, landowners capture much of the improvement through higher land prices.

When selling prices weaken or build costs rise, the amount builders can afford to pay for new land falls.

History shows how violent this adjustment can be.

Development land values fell by around 43% during the early 1990s housing downturn and 46% during the 2008 financial crisis.

Despite subsequent house-price growth, land values remain around 48% below their 2007 peak in real terms(!)

Existing land can still cause problems.

A builder that paid too much during the peak may be forced to accept lower margins or record an impairment.

This is where management discipline becomes very important.

Every management team claims to buy land ‘selectively’.

The evidence appears several years later when that land is finally built on and sold.

The strongest builders enter a downturn with conservative assumptions, a manageable land bank and enough cash to keep operating.

They can then purchase future sites at prices that reflect the weaker market.

In other words, the downturn that damages yesterday’s land value can improve the economics of tomorrow’s.

Taylor Wimpey is one of the best at this imo.

They seem disciplined at not overpaying for land, from the research I’ve done.

Subscribe now

Cash-Flows Explained

Housebuilder cash flow often moves differently from accounting profit.

This is true with most businesses to be honest, but housebuilders are a prime example.

During an expansion, builders purchase more land and increase construction activity.

Cash disappears into inventory long before the resulting profit is recognised.

When the market slows, they reduce land purchases and complete homes already under construction.

Working capital begins converting back into cash.

This is why a housebuilder can report falling earnings while generating substantial cash.

In 2009, the large builders recorded an aggregate post-tax loss of approximately £603m.

Despite that loss, the reduction in capital employed allowed them to produce around £654m of owner cash flow.

In 2010, the industry recorded another post-tax loss of approximately £412m.

Owner cash flow reached roughly £1.89bn as a further £2.3bn was released from the asset base.

That cash was real, but it requires careful interpretation.

A builder can generate cash by purchasing less land and allowing the future business to shrink.

This is known as running off the balance sheet.

This is one of the lenses I look at housebuilders through.

In other words, how much cash I could extract if I bought the business at today’s price and slowly liquidated all the existing assets through the operating business.

That cash should not automatically be treated as sustainable free cash flow though, because once it’s gone, it’s gone.

So, we need to separate the two types of cash (run off and sustainable).

Both types of cash end up in our pocket, but only one is repeatable, year after year.

When I analyse any housebuilder I want to know two things.

First, how much cash could I extract each year if we just kept the business standing still, without trying to grow the land bank.

Second, how much cash could I extract if we simply ran off the balance sheet and closed the operation down in an orderly fashion.

This helps me figure out how healthy the business is and whether it could survive the next cycle trough.

If you’re a rational, business-minded investor, this is really the only way to value these businesses.

Subscribe now

Barratt Redrow

Barratt Redrow is the biggest so I’ll just use this as an example

It has many of the characteristics needed to survive a difficult cycle.

Its scale lowers procurement and compliance costs.

Its national site network provides geographic diversification.

Its brands cover different parts of the market.

Its balance sheet gives management room to reduce land spending without negotiating with lenders from a position of weakness.

It holds net-cash and consistently generates owner-cash.

The business also has a long operating history.

BR has retained the Home Builders Federation’s five-star customer satisfaction rating for 16 consecutive years.

At least 90% of customers must say they would recommend the builder to achieve that rating.

In FY2025, the company’s brand-level recommendation scores were close to 96%.

Its site managers have also won more ‘NHBC Pride in the Job quality’ awards than any other builder for 21 consecutive years.

Obviously, these awards don’t generate cash, but they do indicate a good business.

It has a national organisation capable of buying land, navigating planning, managing hundreds of sites and selling thousands of homes every year.

Replicating that organisation is pretty much impossible, even for large, well-capitalised businesses.

And, today, the market is saying that it’s essentially worthless.

Subscribe now

The Risks Real

The low price is there for a reason and it’s important to understand exactly what those reasons are.

One thing is that the industry faces substantial costs relating to building safety.

Barratt Redrow’s estimated legacy remediation cost is around £1bn.

The company must also pay the Residential Property Developer Tax, which adds a 4% surcharge to qualifying profits above £25m.

A further Building Safety Levy is expected to add approximately £3k per plot.

The estimated annual cost to Barratt Redrow is around £40m to £50m.

Planning reform creates another uncertainty.

If the government succeeds in releasing much more development land, incumbent builders could increase volumes.

More available land could also weaken one of the main sources of their historical returns.

Higher supply would be good for the country and helpful for buyers.

But the actual outcome depends on how reform is implemented.

Permission to build more homes has limited value if planning departments remain under-resourced, infrastructure cannot be delivered and buyers still cannot obtain affordable mortgages.

The risk to shareholders is also a factor.

Bad management can allocate capital to the wrong things at the wrong times while paying the wrong price.

This is true even in a structurally advantageous market, let alone current conditions.

Therefore it’s important not to just buy every housebuilder you see trading below TBV.

The more selective we are, the more money we will make over the next 2-4 years.

Subscribe now

Finding The Opportunities

The first thing I always look for is survival.

A housebuilder should be able to withstand several years of weak demand without issuing shares at a distressed price.

Net cash is a great sign, especially at the trough.

Moderate debt may be acceptable when the assets are conservatively valued and maturities are distant, but it’s a risk I don’t bother taking.

Large borrowings, heavy land-creditor balances and fixed cash commitments make the valuation much harder to trust imo.

The next step is adjusting the asset value.

I like to know when the land was purchased, where it is located, whether it has planning permission and what selling prices are required to earn an acceptable margin.

A large land bank is only useful when it can produce profitable homes.

Land bought at the wrong price can trap capital for decades.

Reading historical reports helps here because we can literally see how previous acquisitions played out.

I then examine cash generation across the full cycle, and especially in the worst years.

A five-year average is my favourite figure to use against a valuation but I also want to make sure the business is still generating positive cash flows at the bottom (even if they’re tiny).

This comes back to survivability more than assessing value.

If the market is pricing a business like its operating business is dead, all we need is for that not to be true.

If the business looks cheap across a range of scenarios this is also a great sign.

Finally, I study past capital allocation.

The strongest balance sheet in the sector has limited value when management repeatedly pays too much for land or acquisitions.

A disciplined, rational management team underscores survivability and maximises our chances of making good money on the re-rating.

Subscribe now

Has The Market Overreacted?

The market has good reasons to dislike UK housebuilders.

We all do.

The businesses are cyclical.

Their accounts and assets are annoying to interpret.

Mortgage rates directly affect demand.

Land values can (and do) fall sharply.

Regulation and political intervention create suffocating costs and conditions.

A severe downturn can produce impairments, falling profits and dividend cuts at the same time.

In fact, several companies have had to cut their dividend this year.

Those risks deserve a discount.

However, the current pricing appears to assume something much more serious.

It implies that the existing assets are worth materially less than stated and that the businesses owning them will never generate any meaningful cash ever again.

Given all the evidence I’ve looked at, this seems like an overreaction.

The UK needs more homes.

A lot more.

Planning and regulation make it virtually impossible to create a new national competitor.

Many have already tried and failed.

The largest builders have historically earned attractive returns across complete housing cycles.

Their land banks can release cash when construction activity slows.

Strong balance sheets allow the best operators to survive until land prices and mortgage affordability adjust.

The industry looks mispriced to me.

Buying any old cheap housebuilder because the sector appears cheap would be silly.

The opportunity lies in finding businesses with the same broad characteristics that make Barratt Redrow and Taylor Wimpey (and others) interesting.

Net cash.

Conservatively valued land and inventory.

A history of producing cash across the cycle, including the bottom.

Enough scale to navigate planning and regulation.

Management willing to protect returns rather than chase volume.

Those companies do not need a housing boom to create value.

They just need to not die and trundle along.

At today’s prices, that’s almost certainly enough to generate a multibagger return.

If you enjoy business-minded analysis you might enjoy the premium newsletter.

I regularly find businesses being similarly mispriced with asymmetric upside potential.

A paid subscription gives you access to all of them.

An annual subscription also includes exclusive bonus content such as my personal stock portfolio, that you might also find valuable.

Subscribe now

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s company is a dream for anyone well versed in the trials and tribulations of operating a business.

Nearly 70% of revenue is recurring.

Customer churn is around 1%.

Existing customers are still spending more each year, with net revenue retention above 100%.

Contracts typically run for five years or longer.

The products sit inside legally required, mission-critical workflows that some of the UKs largest businesses rely on every day.

Replacing them would mean changing physical hardware, migrating years of data, rebuilding integrations and retraining staff across entire operations.

The best part is that we can buy this business for roughly 5x its current owner-FCF.

Despite operating for 40 years and being deeply embedded into some of the world’s largest organisations, the market is pricing it like it will soon be dead.

But, above all, it has the coolest stock-ticker I’ve ever seen.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business has operated for 110 years.

It generates more than ¥50bn of annual revenue.

It has approximately one year of revenue already secured through signed contracts.

The balance sheet contains ¥7.84bn of cash equivalents and another ¥1.59bn of investment securities.

The entire thing can currently be purchased for approximately ¥11.66bn, in market cap terms.

After adjusting for cash, investments, debt and leases, the enterprise value is approximately ¥4.02bn.

This all gives us the following valuation ratios:

NCAV Ratio = 1.2

TBV Ratio = 0.6

EV/FCF Ratio = 3.1

P/FCF Ratio = 8.9

The operating business has generated an average owner-FCF of roughly ¥1.31bn over the last five years.

That operating business is also pretty durable and consistently cash-generative.

In other words, I would happily buy this business in the real world.

Let’s take a look….

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business is an interesting little find.

It operates in a cyclical industry and suffers lumpy FCF, but generally remains profitable even at the trough.

It has stacked up so much cash that the EV is now negative.

If we strip out the excess capital from the balance sheet, the adjusted ROCE is over 27%.

The EV calculation includes marketable securities that are held under non-current assets.

If I bought the business I would include all forms of cash and securities.

The FCF figure is basically just the 5Y average.

This helps smooth out the cyclical element and is a pretty good proxy for the next 5 years imo.

This business is not a grower, but it is a stable cash-cow.

Given the negative EV, literally any cash we get from the operating business is free.

In these cases, the only thing that matters is whether or not the business really is healthy and likely to continue, and whether it’s a value trap.

The business is a little cash machine that I would definitely like to own in the real world.

It’s certainly not dying.

And the ownership structure does allow for an activist to build a stake.

In fact, a couple of notorious Japanese activists already have stakes.

The best part is that management is already paying dividends and buying back stock.

When we factor in SBC and all other forms of dilution, the total SH Yield today and going forward is roughly 5% per year.

This makes the set up much more compelling because we get paid something while we wait for that re-rating to occur.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Imagine buying an entire business for less than 4 years of normal cash flow.

Nearly three quarters of the equity value is backed by cash and listed securities.

The business remained profitable through COVID, supply-chain disruption and raw-material inflation.

Shareholders are being paid roughly 9% a year while they wait.

And the largest external investor controls enough votes to exert real pressure on management.

It looks like a classic Japanese value trap, except the value is already being unlocked.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Every deep-value investor eventually runs into the same problem.

You find a business trading below the value of its net current assets.

The balance sheet is pristine.

The company still makes money.

The dividend is well covered.

You’d definitely buy the business in the real-world, at the absurd market cap or EV.

But the market calls it a value trap.

The weird truth is that many cigar butts and net-nets never rerate.

The reason the strategy works has never been that every individual investment turns into a winner.

The portfolio does most of the heavy lifting.

You build a collection of businesses where the downside is protected by cash, working capital, property and conservative balance sheets.

Most continue operating exactly as they always have.

Some quietly send cash back to shareholders for years.

Then one or two receive an unexpected tailwind.

An activist arrives.

Management changes course.

Assets are sold.

Capital is returned.

The market suddenly notices what had been sitting in plain sight all along.

Those few re-ratings generate pretty much all of the overall return.

The beauty of the others is that we don’t lose very much while we hold them.

Today’s business is classic portfolio fodder.

It has been operating for more than sixty years.

It carries virtually no financial risk.

And its net current assets exceed the entire market value of the business.

Let’s take a closer look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business is being priced for decline and death.

In fact, according to the market, the business will be completely gone in less than 6 years.

Never to generate any more cash, ever again.

If you understand how businesses work, the reality looks a little bit different.

For example, 70% of revenue is recurring and embedded deeply into customer work-flows.

The business is net-cash, has virtually no debt, and stable margins, despite some decline in top-line revenue.

The management team appears to be solid.

They don’t waste money and only make acquisitions where they underpay.

Oh, and they have also increased the dividend for 18 years straight.

This year’s base-dividend yield alone is now higher than the 5Y average, which was inflated by a large special dividend back in 2021.

The current market cap is $866.68m, and the EV is $610m.

The 5Y average FCF is roughly $105m per year, and I believe it’s reasonable to expect that to continue going forward.

This all gives us the following ratios:

NCAV = 6.5

TBV = 6.4

EV/FCF = 5.8

P/FCF = 8.2

These show that the balance sheet is a financial fortress of cash that gives the operating business a solid foundation.

When we combine this with the durability of the operating business, 5.8x FCF seems a bit cheap.

This is exacerbated by the fact that the SH yield is around 9% going forward.

Most of this comes from dividends, with the odd little buyback thrown in when management determines the stock price to be cheap.

The ownership structure also looks good.

An activist could build a stake, but they would probably have to align with at least a couple of existing shareholders to make any changes.

None of these existing shareholders have anywhere near enough votes to pull any kind of involuntary delisting at low prices.

Minority shareholders are protected.

Best of all, one of Canada’s most successful investors owns a 10% chunk of the stock, which indicates there is value in the business.

The core set up here is simple:

The market is pricing the earnings like they’re going to zero imminently, but the reason for the sell off doesn’t fully align with the cash-generation of the business in reality.

If we can build conviction in the durability of the FCF, then this looks like a pretty decent set up.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Warren Buffett once said that if you go A-Z on all the companies in the market, you’ll find things.

He meant perfectly good businesses being given away for nothing.

There are actually many different ways to do this.

My personal favourite is to screen for net-cash businesses and then look at them one by one.

A net-cash business is strange.

If there is net-cash, there is also usually a story to go along with it.

And, as you dig into that story, little asymmetric opportunities start revealing themselves.

Today’s business is one such example.

Here’s the story:

The business has recently suffered a double whammy in the accounting.

First, they have a massive liability that they owe to a major supplier.

This was totally self inflicted, and they agreed to pay a fixed sum, regardless of performance of the project.

The project is functional and cash-flowing, but the repayment of this liability is sucking up all the cash.

Accounting profits just hit multi-year lows.

The liability itself sits on the balance sheet, but is debt-like in nature.

It’s not strictly a debt, but the company has to pay it no matter what happens, so it also kind of is.

This inflates my EV, despite there being a huge amount of net-cash on the balance sheet.

The notes reveal that this liability is to be paid off rapidly, out of revenues generated by the related project.

So rapidly in fact that they already paid roughly a third of it in the last year, and will likely have it completely gone in under 2 years.

In this scenario, the FCF is then fully available to the business to spend how it wishes.

The FCF figure, including the new revenues that are already flowing, is roughly ¥4b per year.

The current market cap is ¥16b.

The EV is where it gets interesting.

If the company just paid off the liability tomorrow, from the net-cash, they would immediately free up the ¥4b in annual FCF.

The EV/FCF ratio, in that scenario would be 3x.

The P/FCF ratio would be 4x.

If the company kept their cash instead and just carried on paying it down with the recurring revenues from the project, the EV/FCF ratio would be closer to 0.1x.

The important part here is that the ¥4b FCF is real and actively being generated.

We don’t need to ‘project’ anything other than what happens once the liability is finally gone within the next couple of years.

But, there’s more.

The company is also conducting a pivot that is designed to generate additional revenue from the ongoing AI boom.

This is completely free, capex light, bonus revenue on top of what they’re already producing.

There is no downside from the AI stuff, because it’s already being priced at zero.

However, recent updates seem to show the whole thing is gathering solid momentum and that this could be reflected in the financials during the next couple of quarters.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

If you’ve been following me for a while, you’ll know I like to mix things up.

At any given time, my portfolio is composed of set ups that are cheap to FCF but also cheap to assets.

I like having solid downside protection.

It’s good for sleep.

Some of my favourite set-ups are Japanese companies that trade ridiculously cheaply to their hard assets.

These are the classic ‘cigar-butts’.

Most of them have weird ownership structures that essentially lock the business up from activists or external forces.

People will argue that these are classic ‘value traps’ because the cash will never be released.

This is partially true, but also fundamentally wrong, imo.

It’s true the stock itself could be a value trap, but it’s not true that you can’t make money from them.

One of the most interesting aspects of deep-value investing is the group-dynamic that drives overall performance.

It’s not the stock that generates the returns, it’s the group of stocks.

In other words, it’s perfectly fine to hold a bunch of cheap Japanese cigar butts, because some of them will inevitably re-rate.

Meanwhile the rest of them will most likely do nothing, which also means you don’t lose much.

The re-ratings occur for many reasons.

Sometimes the management unexpectedly returns excess cash.

Sometimes the underlying business does something magical or catches a tailwind (AI etc).

And, sometimes, the price is so low and stretched to the downside that the only direction it can go next is up.

I’m not joking.

Anyway, today’s business is a classic cigar butt.

It’s a business I’d snap up in the real world, if I could (at today’s price), and it’s the kind of stock that would do well in a basket of similarly cheap stocks.

You get the hard-assets at a significant discount and the healthy, cash-flowing operating business for free.

If you’re into dirty, cheap Japanese stocks, you might like this one.

Let’s take a look…

Read more

I found a way to access Bloomberg’s no.1 competitor for 90% less. Here’s how →

Subscribe now

Today’s business was founded in 1956 and has operated successfully ever since.

It sells branded products that you’ve almost certainly purchased, let alone heard of.

The market is currently pricing it as a melting ice cube that is already dead.

We can purchase the tangible assets for almost half price and get the operating business for nothing.

Here are the valuation ratios:

NCAV = 2.2

TBV = 0.6

EV/FCF = 5.8

P/FCF =6.2

If this was offered to me in the real world, and I could buy it with a fraction of my capital base, I believe it would be a very low risk deal.

The balance sheet is a fortress of net-cash, gross margins are actually improving, and the assets are worth considerably more than the stated book value.

Let’s take a look…

Read more

I found a way to access a Bloomberg-level terminal for 90% less. Here’s how →

Subscribe now

Today’s business is classically Japanese.

It’s a bit weird, but it has loads of cash and seems to be a money-printing machine.

In simple terms, the market is pricing the company as if it will die imminently.

The reality is that revenues have indeed fallen, but this drop hasn’t actually filtered down to the bottom-line.

Management seems pretty good at maintaining the cash-generation.

After digging into it, it seems to me that the most likely outcome is a business that will just kind of stay where it is.

Which is fine when we’re only paying 4.2x FCF using EV, and 5.3x FCF using market cap.

For the market to be correct requires this 18-year-old digital platform with over 9 million registered users and 2.5 billion cumulative downloads to collapse within a few years.

It requires management to destroy a fortress balance sheet.

It requires one of Japan’s most cash-generative digital publishing businesses to suddenly stop producing cash.

None of that appears particularly likely.

This is not an asset-backed cigar butt, it’s a pure earnings play.

Having said that, the balance sheet itself remains exceptionally strong.

Even after paying a huge dividend and aggressively repaying debt, the business is net-cash positive.

Let’s take a look…

Read more

I found a way to access a Bloomberg-level terminal for 90% less. Here’s how →

Subscribe now

Today’s idea is pretty simple.

The market used to price it for exponential growth but then the business didn’t grow much.

The stock price now sits 70% off where it once was.

Now, it’s priced for imminent death, despite being a perfectly healthy cash-machine with a fortress balance sheet of net-cash.

Here are the valuation ratios:

TBV = 5.4

EV/FCF = 3.3

P/FCF = 4.4

It might be true that it won’t grow much, but it almost certainly won’t die either.

And that, ladies and gentlemen, is how you end up with an asymmetric bet with 100% upside potential.

Let’s take a look…

Read more

I found a way to access a Bloomberg-level terminal for 90% less. Here’s how →

Subscribe now

As I search through the sewers of the global stock market, I find all sorts of weird little scenarios.

Most of the time it’s just a healthy business being mispriced because the market can’t tolerate uncertainty.

Sometimes it’s some kind of special situation that offers downside protection and massive upside potential.

Today’s set-up is in this camp.

This type of situation is definitely not for everyone, but I do enjoy researching them, and the upside here is immense.

Here are the valuation ratios:

TBV = 1

EV/FCF = 4.5

P/FCF = 5.5

What this tells us is that we have considerable downside protection from the asset base, while the FCF yield is very high.

One of my favourite parts of this idea is that the management team are very keen to return those cash-flows back to the owners.

Last year, for example, the dividend yield (after SBC) was over 8%.

TTM it’s 6%, but there is a very specific and temporary reason for that.

So, if you enjoy businesses with a bit of hair on them, gather round, and let’s take a closer look…

Read more

I found a way to access a Bloomberg-level terminal for 90% less. Here’s how →

Subscribe now

If you’re a business-minded investor, today’s set-up is pretty compelling.

This is one of those situations where the income statement makes the business look far worse than it is in reality.

And, by ‘reality’ I mean much cash it consistently generates for its owners.

Here are the valuation ratios:

NCAV = 2.1

TBV = 0.67

EV/FCF = 4

P/FCF = 4.6

As you can see, it’s trading below the net-value of its tangible assets (minus all liabilities).

These assets are mostly cash, land and buildings.

The FCF figure I used was essentially the 5Y average, because that seems the most appropriate reflection of the next few years.

Last year was triple this number, but included a one-off inventory liquidation.

Aside from the downside protection, the operating business has tax carry-forwards worth €44.64m.

This means the business can earn €178.5m in tax free revenue from here.

All on a market cap of just €25m.

Juicy.

Also, the ownership structure isn’t locked up by family or insiders. The free-float is almost 60%.

There’s room for an activist and protection for minority investors here.

Let’s take a look…

Read more