A Durable Japanese Business for 2.5x FCF
Also trading at 0.8x TBV despite 18.5% revenue growth and 78% OCF growth.
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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…..