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Today’s setup is a classic special situation.

There is no point analysing the business as I normally would, because it’s basically a binary bet on an outcome.

The downside is protected by a mountain of cash and liquid assets, while the upside offers an opportunity for the stock price to go parabolic.

This one caught my eye and I decided to dig a little deeper. This article contains everything I found out during my research.

If you’re into this kind of thing, you might like today’s idea…

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Today’s business offers a very compelling set up.

But first, the bad news.

The stock is basically held by a group of aligned insiders that control 50% of the votes.

There is very little chance of an activist building a stake.

However, there is no real prospect of those existing owners performing an involuntary delisting at an absurdly low price.

There are also two things that make this worth exploring further.

First, the land value appears to match or exceed the current market cap alone.

It was acquired decades ago which makes the book value totally detached from the economic reality.

In other words, we buy the land at fair value and get a healthy, cash generative, durable business for free.

That business is generating a FCF yield of 40% against the EV and 10% against the market cap.

Not only that but we also get all of the cash (75% of market cap alone) thrown in as the cherry on the cake.

There’s more…

The management team is feeling the heat from the recent governance reforms.

In response they just announced “continuous sequential dividend increases” in order to return the excess cash to shareholders.

The dividend yield will be marching higher and higher for the foreseeable future.

When we strip away that excess cash completely today, the ‘look-through’ ROE is around 23%.

This is no compounder, but it is an excellent capital return vehicle, with lots of capital to return.

And management just started the process.

Let’s take a look…..

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This business is being priced as if its earnings are about to disappear.

The market is effectively saying:

“Take the cash, ignore the rest, and assume the operating business isn’t worth much at all.”

But the numbers tell a very different story.

Right now, you’re paying roughly £19m for the entire operating business.

That business is quietly generating around £4m per year in owner-adjusted free cash flow.

It has no meaningful debt.

And it’s sitting on net cash of nearly £13m, which is close to half the market cap.

So, why is a cash-generative, financially solid business being priced like it’s about to fall apart?

And, why do I believe that the market has got this wrong?

Let’s take a look…

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As you might know by now, before stocks, I used to buy and sell small businesses in the real-world.

When I search for stocks I use the exact same valuation framework that I did back then.

The price is probably the most important component.

After all, anything is a bargain at the right price.

Beyond that, I always got excited by businesses that seemed like they would just keep trundling along forever.

Things like waste management, commercial cleaning or niche products that solved a really complex or regulated problem.

Today’s business is one of these.

It’s a business I’d be delighted to own, whole, in the real-world.

The kind of business that is likely to continue generating cash for the foreseeable future.

More importantly, it’s currently priced like it will be dead in just a few short years, but the reality is very different.

It’s growing its revenues and cash-flows YoY, and the business is pretty efficient at converting revenue into owner-adjusted FCF.

In other words, it’s far from dying.

Let’s get into it…

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The market is pricing this business like it’s about to disappear.

It’s generating $100m in annual cash flow.

And, you can buy the entire operation for just over $100m after adjusting for the net-cash.

That’s roughly 1x FCF.

No growth required. No turnaround needed. Just survival.

And yet, revenues are still growing.

Cash flow is still compounding.

The business just cut 30% of its workforce, and none of that benefit is fully reflected yet.

So why is it this cheap?

Because the market believes something has fundamentally broken.

That the core product is becoming obsolete.

That demand is evaporating.

That this is the beginning of a slow decline to zero.

The evidence in the reports suggest this isn’t the case.

When a business with this level of liquidity, this kind of operating efficiency, and this much embedded data is priced like it won’t make it through the next couple of years, I start investigating.

Because if it doesn’t die…

This isn’t just cheap.

It’s absurd.

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Today’s business is based in Tokyo, Japan.

It was founded in 1994, and creates mobile games for a mostly domestic audience.

The market cap today is ¥3.85b and the EV is ¥4.22b.

I calculate the EV using all debt-like obligations along with all cash and marketable securities.

In this case, there is a debt-like obligation (¥2.8b) related to the acquisition of a business in 2022.

This isn’t structured as debt on the balance sheet, and is included in accounts payable instead, which is slightly misleading.

Some screeners show a much lower EV figure, but if I was buying this business, I’d count it as debt.

This still compares pretty nicely to the average FCF figure of ¥1.25b per year.

Here are the valuation ratios:

TBV Ratio = 2.4

EV/FCF Ratio = 3.4

P/FCF Ratio = 3

This is purely an earnings play.

Even more specifically, this is a play based on the fact that the business generates strong, consistent cash-flows.

The FCF calculation is relatively simple here.

We take OCF and deduct maintenance capex.

We then use an average over the last 3 years.

This factors in the new reality of the business after they acquired another business in 2022.

Those cash-flows generate a Return on Equity of roughly 16% per year and a yield (on today’s EV) of over 29%.

Today’s price implies that the operating business is worthless and that it will effectively cease to exist within the next 5 years.

This, as ever, is entirely detached from the economic reality of the business.

First, there’s that 2022 acquisition.

The total purchase price was ¥5b, but the net-assets of the new business were worth much more than that.

In other words, a Japanese cash hoarder bought another Japanese cash hoarder at a significant discount to its tangible book value.

As if this wasn’t good enough, they also paid roughly 2x OCF for the earnings.

So, basically, this business actually got paid ¥1.86b, to complete the transaction.

This is no compounder, but it is a cash-cow that can be milked, very profitably, at today’s price.

Crucially, the float is wide open for an activist to build a stake and unlock all this value.

This fact is the main reason I find this idea so compelling.

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Today’s business is operates from the UK.

They also operate international offices in New York and Amsterdam, and was founded in 2001.

The market cap is £5.45m and the enterprise value is £3.47m.

I calculate the EV using all debt-like obligations offset by all cash and marketable securities.

Over the last few years the business has averaged £877k in annual FCF.

The three year average figure seems like the most appropriate to use here.

This excludes the COVID distortions and the legacy business model that the 5 year average would include.

£877k is what we would reasonably expect the business to produce on an annual basis going forward.

Here are the valuation ratios:

P/FCF Ratio = 6

EV/FCF Ratio = 4

There is absolutely zero downside protection in the assets.

The official equity figure is technically £2.8m, but by the time we have stripped away all the assets that couldn’t actually be sold for cash, in the real-world, it’s negative.

It’s a slight accounting illusion, which I’ll explain later.

This is a highly liquid operation, and the balance sheet is actually very healthy.

On average, they typically hold an unrestricted cash balance of £2.5m - £3.0m.

They also have virtually zero debt, aside from some small lease-liabilities.

In other words, they have more than enough liquidity to cover all their liabilities, but only as a going concern.

The negative equity scenario would only occur if they actually had to liquidate the business, in the real-world.

The current price implies the business is in severe terminal decline.

In fact, the market is saying that this business will cease generating cash within the next 5 years.

The reality in the reports is quite disconnected from this implication.

The business is actively growing revenues, very aggressively.

Pre-COVID, revenues were around £5.5m per year.

Last year, they hit £20m.

For the 18 months ending December 2025, they are projected to hit £29m.

They have also successfully entered the US market and expect this growth to continue.

In other words, they are far from a dying business.

The stock price decline

There are probably three core reasons for the stock price being cheap, relative to the underlying business value.

First, margins have been hit over recent years.

In 2022 they were 25%.

By 2024, they had fallen to 19%.

This was caused by inflation and cost-increases that they couldn’t pass on to their clients.

Next, they changed their accounting period to end in December rather than June.

This created a weird 18-month extended period that ran from July 2024 to December 2025.

I’ll admit this did make it tricky to figure out the financials in the normal way.

It obscured the annualised earnings trends and generated illusory figures in the financial statements.

Finally, the model has large swings in working capital that distort earnings, depending on which time of year it is.

Sometimes the business looks beautiful and other times it looks like a cash burning freak-show.

Given that most ‘investors’ don’t read as much as they probably should, this can cause sentiment to remain negative or indifferent.

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Today’s business is the beneficiary of an activist campaign and business restructuring.

The net result is a streamlined business focused on generating cash for its owners.

In fact, the market cap today is around $270m but they have returned over $600m to shareholders in the last 3 years.

Meanwhile, the market price is still disconnected from the reality of the new-look business.

There are a few issues to be aware of, but overall this is a cash-machine business that is currently cheap.

Let’s take a closer look…

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Today’s business is headquartered in Tokyo, Japan.

At today’s price the market is implying that the operating business is in terminal decline.

It also indicates that all the cash on the balance sheet is inaccessible or will be destroyed by management.

The reality of the business is starkly different.

It’s a profitable, capital-light technology provider, currently expanding its revenues into extremely durable markets.

Here are the valuation ratios:

NCAV Ratio = 1.5

TBV Ratio = 1.3

EV/FCF Ratio = 3.2

P/FCF Ratio = 9.4

The market cap is currently ¥1.88b and the enterprise value is ¥640m.

As always, I calculate the EV using all debt-like figures, including leases, and all cash and marketable securities.

The 5Y average FCF figure is ¥175m and last year it generated ¥286m.

I calculated FCF by starting with the OCF and then subtracted all forms of unavoidable business costs.

This usually includes items not regularly included in OCF, such as lease costs.

After researching the annual reports from the last few years, I believe it’s reasonable to expect an average annual FCF of roughly ¥200m.

The reason for this is that the company conducted a merger with one of its subsidiaries in 2024.

The purpose of this was specifically to optimise the efficiency of the operating business.

Lower costs and better margins.

They are also successfully expanding their expertise out from their traditional markets.

These improvements contributed to last year’s FCF figure being higher than the average.

It seems reasonable to expect this uplift to continue, even to a small degree, going forward.

Stock Price Decline

There are a few things not to like about the business.

First, it’s a typical Japanese cash-hoarder. The net cash represents 65% of the total market cap.

Next, management haven’t exactly been generous with their capital repayments.

The average yield over the last 5 years is practically 0%.

They have initiated a dividend going forward, but this offers a yield of roughly 1.4% at today’s market cap.

Another issue affecting the business is a severe lack of IT talent in Japan. This has been a headache as the business tries to compete.

The main reason the stock price has fallen almost 50% in the last 5 years, is that it was simply too expensive to begin with.

The actual business model is pretty sweet.

The market got too excited about it and, at one point, applied a PE multiple of 32.

The recent sell-off is just all the hot-air being released from the overinflated stock price.

Today, the price can now be considered cheap, relative to that sweet little business model it still owns.

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Today’s business is a highly profitable, asset-light technology platform currently priced at severely distressed multiples.

In fact, if you bought the entire business today, you’d make your money back from the FCF in roughly 3 years, and enjoy 30%+ annual yields after that.

At these prices, the market implies the business is in structural decline and will soon cease to exist.

In reality, the company is achieving record revenue, operates with extreme capital efficiency, and generates consistent FCF.

The company holds a net-cash balance sheet and is aggressively returning surplus capital to owners through massive share buyback programmes and dividends.

The ownership structure is fragmented with a large free-float.

There is no risk of an involuntary delisting and an activist could comfortably build a significant stake.

This extreme disconnect between the market price and the underlying cash generation gives us an exceptionally wide margin of safety.

I also believe there are highly probable near-term catalysts occurring that will unlock the value.

Let’s take a look…

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RTC Group (RTC) is an AIM-listed recruitment business located in Derby, UK.

It’s also a nano-cap.

The market cap is £13.31m and the business holds £3.87m in cash and cash equivalents.

The company has zero bank borrowings and operates completely free of term debt, but it does have £2.14m in lease liabilities.

After factoring those in, the enterprise value is £11.58m.

The FCF calculation is relatively simple, in that we can take the OCF figure, and deduct capex and lease costs.

It becomes a little more complex because we can’t strictly rely on the recent averages to guide the forward FCF earnings.

For example, the last 5 years were heavily distorted by the COVID pandemic, the termination of a major contract, and severe rail strikes in the UK.

In FY2025, the business also released £3.6m of cash from unpaid invoices. This pushed the OCF to over £5m.

Averaging all that out over 5 years, gives us a 5Y FCF figure of around £1.5m.

After adjusting for all these distortions, and erring on the side of being conservative, I estimate the ‘normal’ FCF to be roughly £2.2m per year.

This all creates the following valuation ratios:

NCAV Ratio = 3.4

TBV Ratio = 2.9

EV/FCF Ratio = 5.2

P/FCF Ratio = 6

This is very cheap to its earnings, which are pretty reliable over the last 5 years, even if they have been a little ‘bumpy’.

There are also a couple of things that make this particularly compelling.

First, the business specialises in capital-intensive industries (rail, water, energy).

This means that it signs long-term contracts and doesn’t suffer from short-term gyrations in the economy.

The client-base is blue-chip.

In 2023, they disclosed that the order book is crammed full and worth £200m over the next few years.

The cash-flows look robust and set to continue.

Second, the management team seems to be very shareholder friendly.

Because there is no real debt, they are returning much of the capital back to the owners, through a combination of dividends and buybacks.

The total yield of all this is around 12%, and looks set to continue for the foreseeable future.

This is after any dilution and SBC activity.

So, we buy a cash-generative, debt-free business with a FCF yield of almost 20%, and receive around 12% while we wait for the price to re-rate.

The ownership structure is also attractive.

While 53% of the stock is in the hands of majority owners, they are highly fragmented and unrelated.

The largest shareholder only controls around 20% and the rest have totals ranging from 4% to 10% each.

This means an activist position is possible, but would take at least one ally from this group of existing owners.

This also means there is a low risk of the business being delisted for nothing because they don’t have enough control to force it through without broad agreement.

All in all, this looks like a solid set up with some nice upside potential.

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The Business Model

RTC Group Plc operates through three distinct divisions.

The primary revenue engine is the provision of temporary and contingent labour.

In the 2025 financial year, the Group generated total revenue of £95.5m.

The revenue contribution breaks down as follows:

Temporary Placements: This generated £91.0m, representing 95.3% of total revenue.

Permanent Placements: This generated £2.4m, representing 2.5% of total revenue.

Central Services: This division, which operates The Derby Conference Centre, generated £2.1m, representing 2.2% of total revenue.

RTC doesn’t operate as a standard generalist recruitment agency.

Instead, it provides fully managed workforce solutions in safety-critical environments.

To illustrate:

The Energy Sector: Utility companies face a severe national skills shortage when trying to meet government-mandated smart meter installation targets.

To solve this, RTC established its own dedicated training and assessment centre in Milton Keynes.

They directly recruit, train, and deploy skilled engineers for their clients, providing a full life-cycle workforce solution.

International Logistics: International clients require highly vetted personnel deployed to remote, hostile environments.

For example, in 2024, the Group’s international division wet-leased an Airbus A320 aircraft.

The business then recruited 150 workers from 15 different countries.

It mobilised them to a central location for military security clearance, and successfully deployed them to the Diego Garcia military base for the United States Navy.

All this is one reason I find the set-up so compelling.

Over the last 5 years, they have transitioned more and more away from ‘normal’ recruitment and into long-term partnerships with large companies and governments.

Key clients include, Network Rail, NATO, the US Navy, and several of the UK’s largest utility companies.

The business generates the vast majority of its revenue domestically.

In 2025, the UK market accounted for £88.9m in revenue.

The International division generated £4.4m, servicing clients across the Middle East, Somalia, Poland, and Diego Garcia.

As you’ve probably guessed, RTC holds a market-leading position.

The recruitment market is highly competitive and places significant pressure on margins.

However, it defends its market position by embedding itself into the client supply chain.

By funding apprentice training and operating its own assessment facilities, it makes a mockery of traditional recruiters handing out CVs.

Management Strategy

The goal is to build a diverse and complementary portfolio of sector-specific subsidiaries that act as long-term strategic partners to capital-intensive infrastructure clients.

They also understand how to return capital to shareholders.

Their execution isn’t bad either.

Shareholder yield is double digits and looks set to continue.

They also successfully integrated three different recruitment teams, offering clients a single, comprehensive solution.

They also acquired a company called Ganymede Energy, which has proven to be extremely accretive.

So far, it has returned 5x the original purchase price.

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The Operating Business

Revenues over the last few years illustrate this shift away from cyclical recruiter and into a long-term infrastructure partner.

In 2022, revenue declined sharply to £71.9m.

This was driven by widespread industrial action across the UK rail network, which cost the business 75,000 billable hours and £2m in missed revenue.

In 2023, revenue surged to a record £98.8m.

This was driven by the resolution of union disputes and a massive 50% growth, fuelled by government mandates for smart meter installations.

In 2024 and 2025, revenue tapered slightly to £96.8m and £95.5m, respectively.

This slight decline was intentional.

Management deliberately closed the minor rail works and social housing divisions in late 2023.

This was because inflationary pressures on labour and materials reduced the profitability of those specific sectors.

In 2025, the permanent recruitment market experienced a sustained slowdown in demand.

The business successfully offset this 14% drop in permanent recruitment by capturing stronger demand for temporary and contract staff.

They grew temporary contract gross profit by 9%.

Despite these set-backs, the business has proven itself to be a resilient cash-machine.

For example, in 2025, the capex spend on £95.5m in revenue was only £150k.

This means that operating profit typically goes straight into the bottom line and into its owners pockets.

The Growth Profile

RTC isn’t growing.

Revenues are basically flat and will likely remain in the £90m to £100m range for the foreseeable future.

However, the profitability of the business is improving.

For example, gross profit margins were 17.6% in 2023, 18.5% in 2024, and 18.7% in 2025.

EPS has also grown consistently.

They were 12.75p in 2023, 13.01p in 2024, and 14.10p in 2025.

Right now, the equity of the business is £8.19m.

Using our sustainable FCF figure of £2.2m, this equates to an adjusted ROE of over 25%.

This efficiency is even more compelling when we compare it with the capital-return activities of the management team.

They’re currently paying 7% dividends and have retired over 14% of the outstanding shares in the last two years alone.

It’s not a compounder, but it is a healthy, cash-generative business that will likely be around for the foreseeable future.

In other words, the business is incredibly durable.

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The Assets

When assessing the assets my goal is to strip out anything that has no value in the real world and look for things that have more real-world value than stated.

The assets are pretty high quality.

Cash = £3.87m

Receivables (invoices) = £9.99m

Contract Assets (unbilled work completed) = £2.41m

I excluded things like prepayments, intangibles, right of use assets, and deferred tax assets.

I’ve only included the fixtures and office equipment component of PPE, which is £500k.

Total liabilities are £12.46m.

Using that adjusted asset base, the NCAV is £3.8m and the TBV is £4.4m.

The positive NCAV alone illustrates the high quality of the asset base.

There aren’t any hidden assets that I could find.

However, there is the order book.

In 2023, management confirmed a secured order book commitment of approximately £200m.

If we compare this to the current EV of £11.58m, it looks like a pretty significant asset.

This is the main source of conviction behind those £2.2m per year FCF figures I calculated earlier.

There is also a sub-lease agreement that guarantees RTC £500k over the next few years.

It’s nothing significant relative to total revenues, but it’s worth mentioning.

All in all, the balance sheet is pristine.

The £8.19m in equity is supported by almost £4m in cash.

Of course, there is no liquidation protection, but this idea rests on the ongoing cash-flows and capital return instead.

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The Shareholder Yield

As discussed, the total yield is roughly 12%.

I’m going to ignore the COVID distortion and focus on the last 3 years.

Even during those years, there was no dilution or SBC activity.

Once that period was over, the business started getting serious about capital returns.

In 2023, it paid a dividend of £145k. There was no other activity.

In 2024, they paid out £819k in dividends and £980k in buybacks. There was no dilution or SBC activity.

This generated a net return to shareholders of £1.8m.

2025, was similar.

They paid out £780k in dividends and £851k in buybacks, for a net return of £1.63m.

Even with those COVID distortions, the average yield over the last 5 years was over 5%.

The entire motivation here was for management to return value to existing shareholders.

The Board explicitly enacted these buybacks because the shares were trading at a steep discount to their intrinsic value.

Management noted that acquiring these shares at a significant discount to the market directly benefitted all remaining shareholders.

Going forward, we can expect yields closer to 12% than 5%.

For the 2025 financial year, management proposed a total dividend of 6.71p per share.

This equates to approximately £842k in annual cash pay-outs.

On today’s £13.31m market cap, the dividend alone provides a base yield of 6.3%.

The business sustainably generates approximately £2.2m in owner-free cash flow per year.

After paying out the £842k dividend, the business retains roughly £1.3m in surplus cash annually.

Management has demonstrated a clear, ongoing commitment to using this surplus to aggressively buy back shares and raise dividends further.

This all points to the shareholder yield continuing to be impressive over the next few years.

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The Ownership Structure

The ownership structure of RTC Group Plc is highly concentrated.

The business is tightly controlled by a small group of long-term individual investors and insiders.

This concentration protects the company from hostile takeovers but limits the influence of outside activists.

The company only discloses shareholders who hold an interest of 3% or more.

In the 2025 annual report, exactly seven shareholders met this threshold.

Together, these seven individuals hold a combined 53.92% of the total voting power.

Institutional investors only control around 2% of the total stock.

There is strong historical voting alignment between the largest shareholder and the executive board.

The largest shareholder is M L Douie, holding 20.52%.

M L Douie inherited this stake from the late W J C Douie, who passed away in 2023.

W J C Douie was the co-founder and long-time Executive Chairman of the business.

A M Pendlebury is the current Chairman and Chief Executive.

He holds a 5.55% stake.

Pendlebury joined the board as Group Chief Executive in 2007 and ran the company alongside W J C Douie for 16 years.

This deep historical relationship strongly indicates that the Douie family stake (20.52%) and the CEO stake (5.55%) are closely aligned.

Together, this aligned insider group controls 26.07% of the voting block.

There are also no treasury shares.

When they buy back stock they immediately cancel all the shares they purchase so that they are immediately accretive to existing shareholders.

All of this is bad news for an activist, because they could only get control by doing a side-deal with one of the major seven owners.

Given the cash-generation of the business, this would be a pretty hard sell at the current price.

For passive minority owners this situation looks a lot more positive.

Even if the controlling block were fully aligned, they don’t have enough power to force through an involuntary delisting.

The actions of management have also demonstrated high levels of integrity so far.

All of this provides comfort that there is unlikely to be a delisting at an absurdly low stock price any time soon.

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The Risks

There are a few specific risks that we should be aware of before buying this stock.

First, there is significant customer concentration.

The business relies heavily on a small number of massive infrastructure clients.

In 2025, just three UK customers generated £23.4m, £10.1m, and £10.7m respectively.

Combined, these three clients delivered £44.2m in revenue.

This represents 46.2% of the total £95.5m Group revenue for 2025.

However, this isn’t quite as bad as it sounds.

The absolute risk of customer default is low.

Obviously they are major corporations and governments.

The relationships are also governed by long-term framework agreements rather than spot-market transactions.

The company also actively utilises credit insurance to protect its debtor book against financial failure.

In other words, the risk of a client disappearing is virtually non-existent, and the risk of them ‘cancelling’ the contract is similarly low.

However, if something like that did happen, it would be catastrophic for RTC.

They are also indirectly exposed to trade union disputes.

The trade union dispute in 2022, resulted in them losing out on £2m in revenue.

The dispute was nothing to do with RTC, but it impacted their ability to work with their client (Network Rail).

Those costs are unrecoverable.

Another exposure is to government regulations and legislation.

For example, the UK government has already implemented pro-employee legislation that has ramped up the cost of labour.

This directly impacts the business model of a business like RTC.

The UK government is also responsible for the infrastructure spending of clients such as Network Rail and the Utility sector.

If spending is cut, it could indirectly impact RTC.

However, it’s also worth noting that even if short-term cuts are enacted, it’s almost certain that spending will resume in these sectors.

Infrastructure is fundamental to the operation of the entire country.

Another compelling feature of RTC at today’s price is that they have already demonstrated impressive resilience.

For example, in 2021, the UK pulled out of Afghanistan. RTC relied on this deployment to supply contract labour for NATO.

This instantly terminated a highly profitable revenue stream.

The business managed the logistical nightmare of safely evacuating all its international contractors.

Instead of collapsing, the division pivoted.

By 2024, the International division had fully replaced this lost work.

They deployed 150 workers to the Diego Garcia military base for the United States Navy, and expanded operations into Poland and the Middle East.

The Network Rail union disruption was handled similarly.

Despite the massive operational disruption, the Group retained its relationship with Network Rail.

It also successfully secured a new multi-year contract, and saw revenues surge back to a record £98.8m in 2023 once the union disputes were resolved.

While the business faces significant customer concentration and legislative margin pressures, it is highly durable.

Over the last five years, it has survived global pandemics, sudden cancellations, and national rail strikes, consistently emerging stronger and completely free of debt.

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The Investment Case

The main case here is the £11.58m enterprise value against the sustainable FCF of £2.2m per year.

We then couple this cash-generation with the capital return policy of the management team, which offers a 6% dividend, and a 12% total SH yield.

The downside is protected by how healthy and cash-rich the balance sheet is.

Even if something terrible happened to the business, it would likely resolve the issues and recover.

We can be more sure of this because it has already happened, several times over the last few years.

Each time, the business has bounced back, supported by its fortress balance sheet.

We also have the £200m order book.

Although this isn’t reflected on the balance sheet, it provides tremendous conviction in the ongoing revenue of the business.

Management has also noted that the orders continue to grow year over year.

The current £13.31m market capitalisation implies that RTC Group Plc is a highly cyclical recruitment agency heading into a severe earnings decline.

The market assumes the business is vulnerable to UK economic stagnation, candidate shortages, and delayed hiring decisions.

The reality of the operating business is entirely different.

The business has successfully transitioned into a long-term strategic partner for blue-chip and government-backed clients.

The business is heavily embedded in capital-intensive infrastructure projects across the UK.

These government-mandated infrastructure projects are completely insulated from short-term UK economic fluctuations.

RTC isn’t in my own portfolio, but it is on my watchlist.

I simply hold stocks that I believe offer a slightly better opportunity.

As I cash those other stocks out, RTC will be one of the set-ups I’ll consider investing into, at today’s price or, ideally, even lower.

The current price is 115p

The target price based on my estimate of fair value is 216p

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Today’s set-up is one of the most compelling valuations I’ve seen so far this year.

In fact, it’s incredibly cheap from pretty much every angle you want to check it from.

First, it consistently trades at 5x the owner adjusted FCF figure, using both market cap and EV.

Not just last year, but also the 5Y average and TTM.

Next, it’s a net-net trading at just 0.3x its TBV.

The vast majority of those assets are cash or highly-liquid.

Finally, it has a total shareholder yield in the double digits over the last couple of years.

Even the 5Y average yield is almost 5%.

As always, I calculate the total yield inclusive of dividends, buybacks, dilution and SBC.

This means that we get solid downside protection from the assets, incredible cash-flows from the operating business, and 13% yield while we hold the stock.

The ownership structure is also nice and clean.

This means that insiders own a meaningful stake, but not enough to force an involuntary delisting at an absurd price.

Let’s take a look…

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“In the early days, all he did was look for stocks trading at roughly 30% of book value and just back up the truck.”

- Charlie Munger, on Warren Buffett.

Today’s stock is one that early-Buffett might have liked.

The market has already written off the operating business, so we don’t really need to worry about that.

In fact, the operating business is priced as if it will be a permanent liability.

Draining cash from the balance sheet, until the business withers away and dies.

As usual, this is probably over-pessimistic.

In fact, over the last 5 years, the FCF yield of the business is roughly 9%.

This may not be very exciting but it’s also far from a dying business.

The shareholder yield isn’t very exciting either.

Last year’s yield was 1.64% and the TTM yield is 3.78%.

This boost is thanks to a buyback they recently conducted.

The good news is that there is no SBC or share dilution going on.

There is also no concentrated ownership to speak of.

From what I could gather, insiders and friendly shareholders seem to collectively control around 40-50% of the voting power.

This is after factoring in all the treasury stock the business holds.

This means that we’re safe from one of the biggest killers of deep-value investors.

The dreaded involuntary delisting.

Here are the ratios:

NCAV Ratio = 0.4

TBV Ratio = 0.38

P/5Y FCF Ratio = 11.3

The enterprise value is negative at -¥11.5b.

The current market cap is ¥6.6b.

This alone illustrates the extreme disconnect between price and value.

If we bought this business at today’s market cap, we’d actually end up with almost double the amount of cash we just paid.

This business is pretty simple so the FCF figure didn’t require too many adjustments.

Working capital swings around, but this is all cash used by the operating business.

The business also generates significant income from its investment portfolio. It receives interest and dividend income.

This goes into OCF, but that’s fine by me.

If I was buying this business, I’d count this as income all the same.

The tangible book value is around ¥17.7b and the NCAV is ¥16.5b.

The difference here between market cap and tangible asset value is so extreme, that this set-up was impossible to ignore.

The play here is simple:

Buy the stock, use the assets as downside protection, and then sell when something even remotely positive happens with the operating business.

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The Business

Kaneshita Construction (1897.T) is a Japanese business that operates in two main segments:

Construction Business: This engages in civil engineering, architectural construction, and other general construction work.

Manufacturing and Sales Business (and Others): This primarily involves the manufacturing and sales of asphalt products used in paving and construction.

Weirdly, as of 2024, this segment also includes a food and beverage division operating a conveyor belt sushi restaurant.

In 2024, the company generated ¥9.74 billion in total external sales.

Most of the revenue (96%) comes from construction.

Within the construction segment, 52.5% of revenues come from civil engineering and 47.5% comes from architectural construction.

They work exclusively in Japan, for both public (governments) and private sector clients.

The company is actually highly skilled.

It’s capable of carrying out everything from heavy public infrastructure projects (roads, tunnels, bridges, sewage treatment plants), to specialised private projects.

The private works include things like nursing homes, hospitals, factories and retail facilities.

They even built a highly specialised garrison facility for a US military radar base.

Recently, the business has struggled.

In 2024, the company won a staggering amount of new orders and stuffed their pipeline full of new work.

This indicated that future cash-flows would gush out, as that work was completed.

This was when they also decided to open a sushi restaurant.

Anyway, the problem with all this was that as they started ploughing through all the new work, problems started occurring.

First, revenues dropped (23%), and then operating profits vanished (96%).

The problem is that they just can’t execute the work very efficiently.

The main issue seems to be with finding and hiring highly skilled workers in the construction industry.

During the last twelve months this became a real drain, as the work ramped up but the company couldn’t execute in line with the increase.

This seems cyclical in part but there also seems to be some basic management incompetence at play too.

For example, their response to these issues was to buy back some stock, try to conserve margins and open a sushi restaurant.

They succeeded in opening the sushi restaurant (which lost money), failed to protect margins, but did buy back the stock.

The buybacks are great, but they don’t really solve the core issues with the business.

They also abandoned quarterly forecasts and guidance.

Again, rather than actually trying to fix the issues, they seemed to just stop reporting on them so often.

All in all the business is a long-term asset that has plenty of work and plenty of brand value, but is lacking competent leadership.

The plus side is that the market is already paying us to take the operating business.

All of this is already priced into its natural (worst case scenario) conclusion.

The death and destruction of the business.

The reality is that the business is so cash-rich that it would take decades of continued incompetence to do any real damage.

All we need for a significant re-rating here is for the business to show that it will probably stay alive after all.

In the real-world, this is a pretty low bar.

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The Cash-Engine

The most interesting insight from the statements is the fact that Kaneshita generates quite a lot of cash from investments.

For example, in 2024, operating profit was ¥273m, but ordinary profit was ¥479m.

The difference is the extra cash generated by their cash-hoard and investments.

This isn’t big enough for the business to survive off alone, but it does mask the weakness of the core operating business.

For us, as deep-value investors, it also provides a nice buffer to help us ride out the current volatility in the operating business.

The other insight is that a massive chunk of operating cash flow comes from changes in working capital.

This is perfectly normal for a construction business, but it also explains why its more useful to use a multi-year average to gauge FCF.

Surprisingly, the business doesn’t spend much at all on capex.

This makes it easier for revenues, profits and cash-flows to flow through to the owners unimpeded.

The main issue with Kaneshita is that its cash engine is far too dependent on human labour.

While the construction labour shortage goes on, the business can’t actually execute all the orders it has and convert them into cash.

However, when that issue is resolved, the business seems perfectly capable of trundling along as it always has.

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The Assets

The star of this show are the assets.

Specifically, the cash and highly-liquid assets.

Right now, the business has zero debt and an equity ratio of 82%.

Even if we ignored every asset except the cash, we could pay off all liabilities and still have enough cash to cover the market cap.

Here’s what the asset base is mostly composed of:

Cash = ¥9.9b

Marketable securities = ¥8.69b

Invoices = ¥1.97b

The company also has property assets.

It carries its land at a historical book value of ¥1.21b.

Under Japanese accounting standards, land is held at its original purchase cost rather than current market value.

Given the company’s long operating history (almost 100 years) this real estate is highly likely worth significantly more in a real-world liquidation or sale scenario.

The most compelling part of this set-up is the sheer liquidity of the balance sheet.

Yes, it’s overcapitalised, but it also provides the mother of all protections against loss of capital (for us).

When I’m buying cigar butts, this is the exact type of set up I look for to help me sleep soundly at night.

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Why It’s Cheap

The main reason seems to be that the market is pricing in the value-trap scenario.

An incompetent/indifferent management team and an operating business struggling to make money.

The implication is that this will all result in the business draining all its cash and being liquidated.

The business is facing challenges which are both external and internal.

All this creates uncertainty which the market simply runs away from.

They also decided to open a sushi restaurant…

The Risks

The biggest risk is in the operating business itself and its current inability to execute works it has already won.

This has occurred through a combination of external factors (inflation, labour shortages), and management incompetence (sushi restaurants).

If they can’t turn things around and start generating profits again, the business really will burn through all its cash and liquidate.

I agree that the situation is highly uncertain, but the market reaction totally ignores the massive cash-pile underwriting everything.

The biggest risk by far, therefore, is the management team itself.

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The Investment Case

In the real-world, it’s highly improbable that a business like Kaneshita would just burn all its cash and liquidate.

Even incompetent management teams can’t bear cash burn for too long.

The fact they hoard cash demonstrates how much they dislike the prospect of losing money and going out of business.

They also have an entire team of people working on solving the very issues causing the cash burn.

The most likely scenario, in the real-world, is that they try to get the operating business profitable and back on track.

They will succeed in one way or another, eventually.

The business has been going for 100 years after all, and the issues are all internal rather than anything existential.

Any hint of success is the kind of news we need to get a significant re-rating of the stock.

This is the type of stock you hold as part of a diversified group of net-nets or cigar butts.

While we can’t say for sure how this particular stock will perform in the next 1-3 years, we can be fairly certain that a group of them will generate an outsized return.

In this case, we have a reasonable possibility of all the major catalysts occurring.

First, the business could complete the turnaround required to get back on track.

Second, an activist or competitor could scoop them up for a massive discount, while still paying a large premium on today’s price.

Finally, they have more than enough cash to conduct significant buybacks or even a special dividend.

The current price is ¥3,280 per share.

My target here would be based purely on the value of assets, which is ¥9,237 per share.

I don’t own this stock yet, because it’s not better than my current Japanese holdings.

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Today’s business looks cheap from multiple angles.

However, after looking a bit closer it seems like this is more of an asset-play more than anything else.

In other words, the earnings power is much worse in real-life, but the asset value seems to be much higher.

The first thing to say is that the business has just undergone a massive restructuring.

This renders all the recent averages and earnings figures pretty much useless for anyone trying to figure out how much the business is worth.

To get a more accurate figure we need to try and figure out the future earnings power.

(I’ll explain my calculation formulas later)

After doing this, we get the following ratios:

NCAV Ratio = 1.3

TBV Ratio = 0.9

EV/FCF Ratio = 18.0

P/FCF Ratio = 11.5

As you can see, the new operating business certainly isn’t cheap to a guy like me.

However, it is trading below the value of the tangible assets alone, which also indicates the operating business is essentially free.

If we factor in the ‘extra’ asset value, then the set-up becomes pretty compelling.

The shareholder yield is similarly misleading.

Using data from pre-restructuring years, it looks like we get a healthy 4.5% average yield. After accounting for SBC and dilution.

However, when we use the likely future FCF’s, with the same levels of SBC, the yield becomes more like 0.43% going forward.

Hence, the focus on assets.

It’s also worth noting that the enterprise value is significantly higher than the market cap, at $128m.

This is because I include capitalised lease costs as debt-like obligations. It’s what I’d do if I bought the whole thing for real.

Despite this, I still believe there is the potential for 50%-100% returns on this stock, once operations normalise over the next couple of years.

Let’s take a look…

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The Business

IG Design Group plc (IGR) is one of the world’s leading designers, innovators, manufacturers, and distributors of celebration and creative products.

Founded in 1979, the business is a massive one-stop-shop supplier to the global retail industry.

Following the disposal of its distressed American division in May 2025, the continuing business is now much simpler.

It operates exclusively across three core geographies:

DG Europe (45% of Group revenue): Designs, manufactures, and sources products with manufacturing hubs in the Netherlands and Poland.

DG UK (38% of Group revenue): Designs and manufactures products in Wales and Newport Pagnell, supported by a dedicated sourcing office in China.

DG Australia (17% of Group revenue): Operates primarily as a massive warehouse and distribution facility, sourcing all of its products with no in-country manufacturing.

The products sold fall into two key themes:

Celebrate makes up 64% of total revenue, encompassing items like gift packaging, greetings cards, gift bags, party products, and goods not for resale.

For example, if you buy generic gift wrap or paper party plates at a major supermarket, it is highly likely manufactured by IG Design Group.

Create makes up the remaining 36% of revenue, featuring products that encourage learning and creativity, such as craft products, stationery, and homewares like photo frames.

Sales are obviously highly seasonal.

Everyday products make up 50% of revenues, while the Christmas season dominates with 42%, leaving minor seasons (like Valentine’s Day or Mother’s Day) at 8%.

The company sells to over 4,340 customers globally, but its revenue is heavily skewed toward retail giants.

By channel, revenues break down as follows:

Value & Mass market retailers (70%), Independent retailers (16%), Specialist retailers (11%), and Online channels (3%).

Ownership is quite concentrated.

Alongside the Hedlund (founders) family’s 23.32% stake, institutional holders control roughly 47%.

Despite this, that institutional presence is the main reason I believe the delisting risk is very small.

The story of the last five years is a bit of a rollercoaster.

In 2020 and 2021, the company peaked following the massive acquisition of CSS Industries, aggressively expanding its US presence.

However, 2022 brought a perfect storm of problems.

Skyrocketing sea freight container costs, surging paper and polypropylene prices, and severe labour shortages crushed margins.

They went from 4.8% down to a disastrous 0.4%.

Because their generic products lack pricing power, they couldn’t pass these costs on fast enough.

From 2023 to 2024, a strict turnaround plan successfully recovered those margins to 3.9%.

But in 2025, the US market completely collapsed.

Subdued consumer demand, the Chapter 11 bankruptcy of their fourth-largest customer, and looming US tariffs turned the DG Americas division into a toxic liability.

The Board amputated this division, selling it to Hilco Capital for $1 in May 2025.

Today, management’s strategy is solely focused on sustainable organic growth, margin enhancement, and cash generation.

The metric they use to track this turnaround is the ‘Adjusted Operating Margin’, which they successfully recovered to 4.3% in HY2026.

The adjustments are mostly just stripping out things that are unusual and non-recurring.

Their medium-term target is 4% to 5%.

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The Cash-Engine

The cash-generation engine of IG Design Group is highly predictable, but it relies on an extreme seasonal swing in working capital.

The cycle works like this:

From July to October, the business aggressively consumes cash.

It must buy paper, run its manufacturing plants, and build massive walls of inventory ahead of the peak Christmas selling season.

During this first half of the year, cash drains rapidly from the balance sheet.

From January to March, the engine reverses.

The Christmas products are shipped, massive retail customers are invoiced, and the working capital unwinds as trade receivables are converted back into cash.

To bridge this massive mid-year cash trough, the business relies on a £40 million Receivables Finance Facility.

As mentioned earlier, we can’t really use recent financials to value the operating business.

It is fundamentally smaller now.

For example, in 2022, revenues were over $965m.

Right now, management is targeting annual revenues of roughly $280m.

The average annual FCF over the last 5 years was roughly $30m.

To figure out what it will be going forward I used the formula below.

The reason I did it like this is because we only have ‘clean’ data for the new business for HY2026.

This is the most cash-draining period, and would provide a distorted picture of earnings power. This makes it difficult to annualise with any usefulness.

Basically, I stripped out the changes in working capital to try and come up with a smoothed (and more accurate FCF figure).

You might not agree, but here it is:

Step 1: Calculate Adjusted Operating Profit. Management has guided for an adjusted operating margin of 3% to 4% for FY2026.

Applying this to the 270m–280m revenue base yields an expected Adjusted Operating Profit of roughly $8m to $11m.

Step 2: Calculate Adjusted EBITDA. To find the operating cash flow before working capital movements, we must add back the non-cash stuff.

In the most recent half-year (HY2026), continuing operations recorded $2.5 million in standard depreciation and $2.1 million in right-of-use (lease) depreciation.

Annualising this suggests roughly $9 million to $10 million in non-cash add-backs.

Adding this to the operating profit gives an Adjusted EBITDA run-rate of roughly $18 million to $21 million.

Step 3: Deduct Capital Expenditure. The business must continually invest in its automated machinery and IT systems.

In HY2026, continuing capital expenditure was 2.4million. Annualising this requires deducting roughly $5m per year.

Step 4: Deduct Lease Principal Repayments. The business relies heavily on leased warehouse and manufacturing spaces.

In HY2026, the continuing Group paid $2.7m in lease liability principal re-payments. Annualising this requires deducting roughly $5.5m per year.

Step 5: Deduct Cash Taxes and Interest. The business relies on a receivables finance facility and must pay local taxes on its profitable European and Australian divisions.

In HY2026, the continuing Group paid $2.4m in cash taxes and incurred roughly 0.9m in gross interest costs (including lease interest).

I estimate a conservative full−year deduction of roughly $4m for these cash costs.

The Final FCF Figure: I just took the mid-point figures from all this and came up with a rough annual FCF figure for the remaining business of around $7m.

I tried to be accurate without being too ‘precise’.

Although this is still fairly speculative, I needed some idea of the future earnings power, to assess the valuation.

This is basically how I’d look at it if I was buying this business whole in the real-world, with my own hard earned cash.

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The Assets

Today’s balance sheet is pristine compared to what it was a few years ago.

As mentioned earlier, it’s also where the main investment idea comes from.

I calculate the TBV as the money I could collect from an orderly liquidation of the business.

I estimate this to be less than the headline TBV ($120m), at $85m.

This is because the headline version includes right-of-use lease assets. I wouldn’t consider these an asset in a liquidation event, so I exclude them here.

The $85m figure is made up of fully-owned, liquid and hard assets that could be converted into cash.

However, we then come to those hidden assets I mentioned earlier.

Let’s start with the liquidation proceeds from the US division:

When the US division was amputated, it was sold to Hilco Capital for $1.

However, IG Design Group retained the right to 75% of any future net cash proceeds from the liquidation.

Because Hilco placed the entity into Chapter 11 bankruptcy, management conservatively values this earn-out at $0.

But let’s look at the actual hard assets handed over to the liquidator on 30 May 2025:

Cash: $10.6 million

Trade Receivables: $42.6 million

Inventory: $116.9 million

Total Liquid Assets: $170.1 million

Total Liabilities: ($104.5 million)

Net-Assets = $65.6m

Even in an orderly liquidation, these receivables, from major US retailers, should be highly collectible.

Even with haircuts and discounts, IG’s 75% could be worth around $10m.

Next, we have the property portfolio:

The company owns freehold real estate carried on the books at historical cost minus depreciation, totalling $16.5m.

Recent real-world sales prove this is dramatically understated.

A Kansas property with a book value of $2.2 million sold for $6.7 million.

A Pennsylvania facility carried at $2.9m sold for $8.4m.

This seems to imply there is a healthy gap between the owned properties and the real-world value of them in today’s market.

This suggests that the true market value of the remaining properties ($16.5m book value) is something closer to $50m.

This is another $30m (ish) in hidden value, not included on the balance sheet.

Together with the liquidation proceeds, this equals around $40m in hidden value.

This means we get an additional margin of safety that is equivalent to 50% of that market cap ($80m).

This offers some very nice downside protection, while we wait for the operating business to stabilise over the next few months.

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Why It’s Cheap

The recent saga is probably the main reason.

Revenues have been slashed, earnings figures crushed and terrifying headlines about failed acquisitions and toxic subsidiaries have scared everyone away.

They also suspended dividends, which is never a good look when the stock price is already under pressure.

Management is well aware of all this.

During the 2022 audit, management concluded the market capitalisation was not a representative valuation of the group’s intrinsic value.

In response, management even directed the Employee Benefit Trust to purchase 2 million shares in the open market.

The goal was to prevent massive dilution from granting stock options at such thoroughly depressed prices.

However, all this pessimism is now already priced in.

The Risks

The clean up has already happened and most of the bad stuff is now gone.

The stock price has been obliterated, and expectations for the future of the business are pretty low.

The management team have also cleared away almost all of the bank debts, although they do have considerable lease obligations.

Aside from the business going under thanks to general risks or problems that any business in this industry could suffer, I don’t see much left to worry about.

The only thing I did notice was a small note about an off-balance sheet ‘guarantee’ made by IG design group, to the US division for its lease payments.

The reports don’t quantify this, so it’s probably worth digging into further if you like this idea.

It doesn’t appear to be anything that could materially impact the going-concern nature of IG, but I haven’t really looked at it beyond what’s in the reports.

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The Investment Case

This set-up is simple.

For $128m (EV) we’re getting a business with revenues of almost $300m and FCF of (probably) $7m per year.

We’re also getting a global brand that dominates the markets it operates in.

And we’re not paying for any of it.

The current market cap is priced below my conservatively adjusted TBV, even without the additional $40m from the US liquidation and property values.

We’re paying for the assets, at a discount, and getting a pretty solid operating business for free.

I believe that even the slightest positive report from the operating business over the next 1-2 years, will cause the stock to re-rate at least 50% (possibly more).

With all the hard work done, the team is now focused on the resumption of normal operations, which is going well.

The next updates will be after the major holiday period, which in turn should see a massive influx of cash, making the business appear even more stable and attractive.

The current price at the time of publication is £0.57.

My target would be around £0.90.

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Here are the valuation metrics for today’s mispriced Japanese business:

NCAV Ratio = 1.1

TBV Ratio = 0.4

EV/5Y FCF Ratio = 1.5

P/ 5Y FCF Ratio = 24

The earnings are nothing special, but that doesn’t matter because they are already priced well below zero.

What we’re interested in here is the assets.

To be clear, this is not a situation where we focus intently on the business and wait for catalysts to arrive.

This is a stock that can sit nicely inside a portfolio of dirt-cheap stocks with massive downside protection.

Some won’t go anywhere, but a few will re-rate based on some unexpected developments within the operating business (or maybe a buyout).

This dynamic makes a portfolio of these stocks market-beating over the long-run.

It’s probably the simplest way to make money with cheap stocks.

This company is trading at a massive discount to its liquidation value.

The stock price is currently 0.37x Tangible Book Value, meaning you are buying ¥100 of equity for ¥37.

Even more conservatively, the market cap (¥3.66B) is hovering just above the Net Current Asset Value (NCAV) of ¥3.15B.

This implies you are paying a tiny premium for the liquid assets and receiving the entire operating business and ¥2.96 billion in land for essentially zero cost.

While the 2025 reported cash flow was negative due to a large pay-down of supplier debts, the business remains profitable.

The Enterprise Value (EV) is approximately ¥216 million.

My personal calculation of EV includes all debt-like obligations and marketable securities.

This is what my calculation would be if I was buying the business whole, in the real-world.

Against the 5-year average owner earnings of ¥149M, the operating business is nearly free.

Here are some more facts to help put the valuation into perspective.

The company reported a Net Profit of ¥460M in 2025

The Equity Ratio improved to 62.6% in 2025 from 58.4% in 2024, indicating the balance sheet is getting stronger over time.

Despite rising material costs, the company forecasts continued profitability with a Net Profit projection of ¥460M for 2026.

Finally, there is a consistent shareholder yield available to owners of the stock.

After factoring in all forms of dilution and SBC (hardly any) the average yield is 2.6%.

This is also the yield from the last 5 years.

We get paid something to hold the stock, even though it’s not exactly a windfall.

All in all, this isn’t a business I’d be quick to just give away in the real-world.

These days, one of the first things I look out for is the ownership structure.

When the stock price gets low enough, any rational majority owner would be tempted to delist and take the business private for virtually nothing.

This, obviously, is bad for us, as minority shareholders. We simply don’t make very much money if they do that.

If we factor in the treasury stock held on the balance sheet here, the total voting power of insiders and related parties is roughly 44%.

This falls short of the kind of majority required to delist against the wishes of all the other owners.

In other words, the risk of a brutal delisting is pretty low.

Let’s take a closer look…

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The Business

Kyoritsu Air Tech Inc. is a Japanese company, originally founded in 1967.

The company manufactures and sells HVAC and disaster prevention equipment.

It operates as a single business segment focused on air conditioning and disaster prevention-related devices.

The business serves two main markets: commercial building equipment and residential housing equipment.

Based on the 2024 full-year results, revenue is split across several product groups.

Residential Systems accounted for about 33.2% of revenue.

This included whole-house air conditioning, 24-hour ventilation, and radiant heating and cooling systems, generating ¥3.96B.

Dampers made up around 27.1% of revenue, covering airflow control devices used in smoke exhaust and air conditioning ducts, with revenue of ¥3.23B.

Diffusers and blow-out ports represented about 20.1% of revenue and are air outlets for air conditioning systems, generating ¥2.40B.

FAS units contributed roughly 0.8% of revenue and consisted of specialised air conditioning units, with revenue of ¥98M.

The remaining 18.8% came from other related products and services, that seem to be unspecified.

The business is overwhelmingly domestic.

Sales to customers in Japan exceed 90% of total sales, and over 90% of tangible fixed assets are located in Japan.

It does have a consolidated subsidiary in China, ‘Changshu Kuaifeng Air Conditioning Co., Ltd.,’ which does some manufacturing for them.

To get a good feel for any business I always like to review the story of the last 5 years.

The business was hit hard in 2020 by the pandemic, the end of Tokyo Olympics projects, and weaker private investment, which caused revenue and profit to fall sharply.

Performance stabilised in 2021 as efficiency improved and semiconductor factory projects supported demand.

In 2022, revenue grew through price increases and manufacturing demand, but soaring material and labour costs compressed margins and reduced profit.

A strong recovery followed in 2023, driven by urban redevelopment and partial cost pass-through.

Growth then stalled in 2024 as residential demand weakened.

In the first nine months of 2025 sales rose slightly.

However, profit fell significantly due to higher material and labour costs and construction delays from regulatory changes.

Interestingly, Kyoritsu is focusing hard on automation and the elimination of human-labour.

They call this ‘human-robot collaboration’.

They even have specific targets for reducing the number of ‘man-hours’ across their factories, and have made good progress hitting them in recent years.

They’re also trying to release higher-margin products in the residential sector. The idea here is to improve margins.

All in all, they’re a mediocre business trying to improve.

They’re generally profitable and management is actively trying to implement ideas to push things forward.

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The Financials

The statements over the last 5 years reveals a stable, mature manufacturing business that is managed conservatively.

It is not a high-growth company, but it is resilient against economic shocks.

The business generates cash through a straightforward manufacturing model.

It buys raw materials, converts them into HVAC dampers and systems, and sells them to large, credit-worthy customers.

The cash engine is capital intensive, and requires factories, robots, and inventory.

It’s also volatile. Over the last 5 years it has generated a peak OCF of ¥990M and a low of ¥283M.

Sales have been stable, generally hovering between ¥9.9B and ¥11.9B.

In 2020, sales dipped to ¥9.92B due to the pandemic but recovered to ¥11.92B by 2025.

The management team has proven they can maintain top-line revenue even when housing-starts in Japan decline.

The business operates with thin but consistent Operating Profit margins, typically ranging from 5% to 6%.

In 2022, margins compressed significantly due to soaring raw material prices, cutting profit by 21.4%.

However, management successfully recovered profits in 2023 and 2024 through price adjustments and cost reductions, showing they have some pricing power.

I mention this to illustrate the disconnect between the reality of the operating business and the pessimism implied in the current price.

The main attraction here is, of course, the balance sheet.

As of 2025, the company holds ¥4.15B in Cash and Deposits and ¥1.25B in Investment Securities.

This total liquid value (¥5.4B) exceeds the entire market capitalization of the company.

The assets are real, factories, machinery, and land.

There is very little fluff or goodwill (intangible assets are negligible at ¥82M).

The most significant hidden value is the Land, recorded on the balance sheet at ¥2.96B.

Under Japanese GAAP, this is recorded at historical cost (what they paid for it years ago).

Frustratingly, the reports don’t indicate the current market valuation or even the size of the land area.

However, it houses the factories and productive assets of the entire business.

Given the company’s long history, I reckon the current market value of this real estate is far higher than the book value.

It’s something to dig into deeper if you like this idea.

The business is obviously over-capitalised, and has far more cash than it needs to operate.

This is inefficient, but it guarantees survival.

This is important because re-ratings take time, and I like to sleep soundly at night.

Overall, Kyouritsu Air Tech is a financially indestructible business.

It generates reliable cash flow, has zero net debt, and sits on a mountain of cash and undervalued real estate.

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Why It’s Cheap & Risks

This one is pretty simple.

Management gives off ‘value trap’ vibes.

They generate cash but refuse to pay it out significantly, choosing instead to let it pile up on the balance sheet or invest in low-yield securities.

They also make no mention of the Japanese governance reforms or any kind of plan to increase shareholder returns.

I think the market basically assumes that all the cash and assets will remain trapped inside the business.

The business itself also isn’t growing.

It’s stable, but the market loves to price in growth above all else.

Of all the things going on here, these are the issues that seem to be holding the stock back the most imo.

There are a few things that could damage the business but nothing that would particularly concern me as a private owner.

The biggest risk here is that of the management team continuing to hoard cash.

Despite this, the returns can still be market-beating.

This all comes down to how compressed the valuation is, and how much upside potential is baked into the current price.

Over the last year, for example, the stock rallied almost 26%, which is more than most major indexes.

Despite this, it still trades at a 40% discount to its assets.

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The Investment Case

The investment case for this type of stock goes something like this:

The balance sheet provides an enormous margin of safety through its liquid assets and (probably) undervalued land.

It will continue trundling along for many years into the future.

There is an almost zero risk of it ceasing to exist as things stand.

The only possibility is some kind of blatant accounting fraud, where the assets don’t really exist.

From that base of continued operation, it’s likely that the operating business will do something positive in the next few years.

Or, an activist starts building a stake to unlock the value.

Or, the management team finally starts to feel the pressure of the ongoing governance reforms.

Or, the stock price will simply keep grinding higher at a slightly faster pace than the general market, boosted by the incredibly low valuation.

Something like this will happen at some point, because it always does.

This only really works if you buy a group of these kinds of stocks.

You certainly don’t want to put all your life-savings into Kyoritsu Air Tech.

However, if you can find 15 or 20 of them, the dynamic changes.

The portfolio generates the returns and each individual stock matters much less.

As I mentioned before, this is probably the simplest form of deep-value investing and a situation that provides massive downside protection for your capital.

If you like this idea, I estimate there is roughly 150% upside to the TBV of the business and 65% upside to the fair value (based on the earnings).

I don’t hold this stock because it’s not as good as the Japanese stocks I own already.

If I did buy it, my target would probably be around ¥1250 per share.

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Today’s stock is currently priced below its liquidation value.

At this price it values the operating business at zero, implying that it will never generate positive FCF for its owners ever again.

When I read through the reports however, I got a very different feeling.

First of all, this business is not burning cash.

It’s generating it, consistently, even on a TTM basis.

It also increased its profit margin last year, despite slightly lower revenues.

Best of all, the company is aggressively buying back the stock.

The share count has been reducing annually for decades, and last year alone, they retired around 7% of the outstanding shares.

The balance sheet is pristine with no interest bearing debts or obligations while the net-working-capital is virtually equal to the current market cap.

The business is facing cyclical-uncertainty.

But, as a real-world owner, there is nothing going on that would make me give this business away for less than the value of its tangible assets.

The valuation is absurd and the business is operationally healthy.

For a patient, deep-value investor, this is a pretty decent set-up.

Let’s take a look…

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Today’s business is a nano-cap cash machine with hidden assets worth almost twice as much as the current market cap.

Let’s start with the ‘headline’ valuation metrics:

NCAV Ratio = 7.5

TBV Ratio = 2.7

EV/5Y FCF Ratio = 3.7

P/5Y FCF Ratio = 5.1

EV/TTM FCF Ratio = 1.4

P/TTM FCF = 2.0

This looks very much like a ‘cheap-to-earnings’ situation, while the earnings seem to be improving.

However, we need to look closer at the assets.

They include a series of 100% owned subsidiaries that are generating positive FCF in their own right.

These are recorded on the balance sheet under ‘intangibles’ because they were acquired.

To figure out how much these would be worth in the real-world I simply looked at the FCF records for each subsidiary and did a quick calculation of value.

In other words, how much could they be realistically sold for in a private, real-world, transaction.

When we factor this in, the asset base metrics adjust as follows:

NCAV Ratio = 2.3

TBV Ratio = 0.45

As you can see, this flips the set up from a purely ‘earnings’ play to one that has a margin of safety in both earnings and assets.

I’ll explain my calculations later on, but even if you don’t agree with the asset revaluation, this thing is still cheap to earnings and worth a look.

We do need to mention the shareholder yield though.

The average SH yield over the last 5 years is -0.4%.

It’s negative because there is dilution and SBC activity offsetting the buybacks and dividends.

It’s worth noting that the dilution has flipped into positive-returns during the last couple of years, with the TTM SH yield at +2.5% net.

In other words, the business seems to have stopped diluting and started shovelling cash back to shareholders in the last couple of years.

Overall, this is a very cheap stock with some (arguably) hidden assets offering a massive margin of safety.

Let’s take a closer look…

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The Business

Qwamplify (ALQWA) is a French based marketing group, offering digital and data marketing services.

It helps brands recruit and retain consumers through two main activities:

Improving brand visibility via digital channels (Media) and managing promotional campaigns and customer relationships (Activation).

They generate revenue from fees and commissions.

Reporting is done through two segments, ‘media’ and ‘activation’.

The media segment specialises in helping companies increase brand awareness and acquire new customers.

They do this through a variety of channels such as SEO, paid search advertising, social media content management, email marketing campaigns and data analytics.

They charge fees for these services, normally billed monthly.

The activation segment focuses on promotional operations, CRM management and licensing deals.

For example, they might handle a ‘cash-back’ offer for one of their clients.

The client might offer their customers $50 back on every purchase of a specific product.

Qwamplify handles these promotions end to end and ensures they’re delivered as requested.

Revenues for this segment are generated through a combination of fixed set-up fees, and variable management fees.

For example, they might get paid based on the number of refunds processed during the campaign etc…

The revenues are generally split around 60/40 with most of it coming from the media division and the rest from activation.

They typically work with large corporate clients in the retail sector.

100% of their revenues come from Europe, with most of that being concentrated in France.

The story of Qwamplify over the last five years is a classic case of a cash-rich holding company attempting an aggressive acquisition spree.

In early 2020, Qwamplify sold its minority stake in Bilendi for €10.3M cash.

This gave them a massive war-chest relative to their size.

Instead of returning this cash to shareholders, management embarked on an ‘external growth strategy’ to build a digital media empire.

They diluted shareholders (raising €1M at €7.00/share) to buy a collection of digital agencies.

They acquired La Revanche des Sites (SEO), Meet Your Data (Analytics), and Kamden Media.

The company was profitable, cash-rich, and expanding its footprint into digital marketing to complement its historical activation (couponing) business.

In 2022, they continued buying, acquiring Eurateach (education) and Nouvoduo (creative agency).

But then, in 2023, the strategy hit a wall.

The group reported a massive Net Loss of -€9.1M.

Management admitted that while Gross Margin grew slightly (+2.5%), personnel costs exploded due to the integration of new teams.

The company was forced into a €10.8M impairment charge against the Goodwill of the companies it had just bought (mainly Bespoke and Activation).

They basically admitted that they overpaid for these assets and/or failed to integrate them.

In FY24 management stopped buying new companies and started cleaning up their operation.

They sold the subsidiary ‘Q3’ for a symbolic €1 (taking the loss) and, as of July 1, 2025, sold the Nordic operation to refocus strictly on France.

They merged the various small agencies (Adsvisers, G5K, Kamden) into single operating units (Bespoke and Activation) to cut administrative overlap.

On a TTM basis, the business is shrinking in revenue (down 20% due to a tough Retail market) but has become highly cash-generative through cost-cutting.

The ‘growth at all costs’ phase (2020-2022) failed and destroyed shareholder value.

The ‘Fix it’ phase (2023-Present) is working operationally, because the business is now a lean cash machine generating €3M-€6M in annual FCF.

This transition came after a change in the management structure, which indicates they are now on a different path.

The remaining disconnect is that the market still prices it like the failure of 2023, ignoring the cash generation of 2025.

This is where our opportunity lies imo.

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The Financials

Most businesses have to pay for inventory or staff before they get paid by customers (Positive Working Capital).

Qwamplify is the opposite.

It utilises a negative working capital cycle, particularly in its activation division.

Here’s how it works:

A major brand (e.g., Kärcher, Samsung etc) hires Qwamplify to run a ‘Cash-Back’ campaign (e.g., “Get €50 back on this vacuum”).

Before the campaign starts, the client transfers a massive lump sum (e.g., €1 Million) to Qwamplify to cover the future refunds.

Qwamplify holds this cash in its bank accounts.

It does not belong to Qwamplify (it is recorded as a debt to the client), but Qwamplify physically holds it.

As consumers claim refunds, Qwamplify pays them out.

If fewer people than expected claim refunds, the leftover money is returned to the client or rolled over.

One of the core benefits of this type of business model is that Qwamplify earns interest on the money it holds.

In H125 alone, financial income from cash investments was €122k, contributing significantly to the bottom line.

The business rarely faces any kind of liquidity crisis because cash flows in before expenses go out.

It also requires almost no capex to run.

In FY23, the business generated €3.2M in operating cash while spending only €120k on equipment.

The balance sheet looks solid, but is also confusing.

A lazy investor sees €16M in the bank and thinks the company is rich.

In reality, €10M of that belongs to clients.

This actually explains why some data-platforms report the EV as being negative. They’re using client cash as part of the equation.

The accurate EV is around €6.83M (market cap is €8.62M).

This factors in all types of debt, including pension obligations, while excluding restricted cash.

At both prices (EV and MC) this business looks very cheap to both recent earnings and the hidden assets.

The actual cash available to owners here is €6M, and the net-cash (after debts) is €4M, which is strong against the market cap figure.

Other things that can mislead here is the receivables figure.

This is booked at almost €14M but a large portion of that is actually client funds for upcoming campaigns rather than invoices due.

Overall, the balance sheet is a bit of a minefield to figure out.

This is actually why I decided to calculate the true value of the subsidiaries myself, using data from the reports, rather than use the intangibles data.

This is how I calculated it:

There are 5 subsidiaries in total, Advertise me, Activation, Seekr, Bespoke, and Nouvoduo.

3 of them are profitable and cash-flowing.

I tried to use multiples that reflect real deals in the real-world and in my experience a high-level marketing style agency typically sells for between 3-7 x earnings.

I’ve actually bought (small) marketing agencies in the past, so used this experience to help me figure things out here.

The jewel in the crown is Advertise me, and I valued this one at 5x FCF (€7.1M).

The other two, Activation and Seekr, are lower quality so I valued these at 4x FCF (€4.3M and €1.4M respectively).

Bespoke and Nouvoduo are currently loss making but have solid equity values.

For these I just decided to apply a chunky discount (75% and 50%) to book value as the valuation metric.

This added a further €4.1M to the total pot.

As far as I can tell, the total break-up value of the group is somewhere in the region of €17M.

This valuation is far less than they were actually acquired for btw, which is probably why they have suffered such large write downs in recent years.

If we add the net-cash of the group, this increases to €21M.

Even excluding the net cash position, the total real-world value is pretty much twice the current market cap.

The income statement shows the story of the failed acquisition spree, and the recent recovery in earnings.

The cash flow statement shows that the recovery has been effective and aggressive.

For example, the business generated €3.5M in FCF during H125 alone, which is more than during any full year over the last 7 years.

Despite revenue dropping, the FCF has hit record highs in 2024/2025 because the business has stopped wasting money on acquisitions and high overheads.

Cash-conversion is also basically 100% because there is relatively little capex.

When we dig into the cash flow statement we see a business generating €3M - €6M annualised cash flow, trading at an Enterprise Value of €6.8M.

Another positive sign is that management seems to have finally grasped that the best way to allocate capital is to buy back their own stock at depressed prices.

They spent €675k buying stock in FY24 and €143k in H125.

Right now the market is pricing Qwamplify as the chaotic mess from 2023, rather than the efficient cash-machine it seems to have become last year.

If, like me, you have no social life and enjoy reading obscure financial statements, you’ll realise that Qwamplify is a healthy, cash-flowing business.

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Why It’s Cheap

The stock price appears cheap relative to intrinsic value.

This is due to a combination of past capital allocation failures, accounting complexity, and market pessimism regarding the shrinking top line.

When you glance at this business it does look pretty lame.

It’s only when you start sifting through all the ‘noise’ that the value becomes much more compelling.

The market is most likely viewing the business as a destroyer of shareholder value (fair), without factoring in the recent change of course.

There is also the fear that value will be transferred to management rather than shareholders.

Note 2.4 in the 2024 report reveals plans to grant 750,000 Free Shares to employees/managers.

This represents potential 13% dilution, although this is performance based.

Presumably they need to grow the business significantly in order to earn this type of reward, although the reports don’t provide specific numbers.

Essentially, if the old management was still in place, the business would likely become a value-trap.

With the new management team there is a chance to unlock the value and achieve a normalised stock-price valuation.

This in turn, makes the dilution much more acceptable.

In H125, revenue also dropped 20% compared to the previous year.

However, there also lies another misunderstanding within this situation.

While revenue is dropping, profitability is rising.

Management has cut costs faster than revenue has fallen, leading to record FCF (€3.5M in H125).

The company’s accounts are difficult to understand for automated screeners or casual investors.

I can attest to this after staring at them, with tears silently rolling down my cheeks, for a couple of days.

Reported Operating Cash Flow swings wildly (e.g., -€1.6M in 2022 vs +€4.0M in H1 2025) due to movements in client funds.

This volatility makes the business look unstable, earning it a risk discount, even though the underlying cash-flow is stable and growing.

The stock is cheap because the market is pricing in past incompetence and future dilution.

However, the intrinsic-value analysis shows a business that has successfully restructured.

It’s also generating massive cash flow relative to its price.

The stock is cheap thanks to all these legacy issues, so the key is for the new management to demonstrate a move away from those dark days.

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The Risks

Qwamplify has a lot of stuff going on right now.

This includes lots of things that could become problematic in time, if they deteriorate or develop.

Despite all this, there isn’t anything that concerns me right now.

They generate cash, they have more cash than debt and have demonstrated the ability to cut costs and become more efficient.

If I owned this business whole and came back off a long holiday today, I’d be annoyed at the board but glad to see them admit their errors through their recent actions.

The biggest thing I’d want to watch (aside from the financials) is the approach of the management team over the next couple of years.

I want to see significant improvement in the business. I want to see them do things to achieve a ‘fair’ stock-price valuation.

This means continued FCF generation within the recent ranges and no more talk of buying up companies and expanding the empire.

I’d also want to see the buybacks continue for the foreseeable future.

If they get that combination right, then reviving the stock price is actually a pretty simple task from this position.

This isn’t rocket science but them failing to do so is the biggest risk to this idea playing out.

The risk of involuntary delisting is also low.

The founder, Cedric Reny, holds 33% of the vote, but that is far too low to do anything aggressive and underhanded.

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The Investment Case

From a real-world perspective, Qwamplify is cheap.

The idea rests on the premise that the market has priced the company for permanent value destruction, ignoring all the cash and the profitability of its core units.

Almost 43% of the current share price is backed by net cash.

We’re paying roughly €5M (after net-cash) for the entire operating business.

It generated €3.5M in FCF in just the last 6 months.

We don’t need anything magical, we just need the market to recognise that the management team have now stopped driving the business over a cliff.

This set up is also attractive because it allows all three of the top catalysts to play out.

The most obvious one is that the market recognises the turnaround that has already started.

If the next couple of updates continue with the positive trend, then the stock is primed for an asymmetric move to the upside.

Next, they have the cash and cash-flow to buy back meaningful amounts of stock.

This alone can generate a significant re-rating if they decide to focus hard and sustain the buybacks while the price is so low.

Finally, there is scope for an activist or competitor to buy them out.

It’s a good business with a solid brand and a book of large corporate clients.

The free-float is over 60% and the founder is a major shareholder.

Given the current pricing and the simplicity of fixing it (focusing on FCF efficiency and buybacks), this is a prime candidate for some kind of campaign or buyout.

Right now the turnaround is half-finished.

They have successfully cut costs and sold bad assets, but they have not yet stopped the revenue decline.

Buying today is a bet that the revenue will stabilize near current levels, or return to their recent average.

If it does, the stock is a multi-bagger.

If it doesn’t, the €6M cash pile provides a nice margin of safety.

I publish a new one every week, and every single one of them is a stock I’d rather buy (in a group) than any index.

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