A Japanese Cash-Machine for 4.2x FCF
Includes a management team returning capital to shareholders.
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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…