A Growing Japanese Business for 3.7x FCF
Also trading at 0.6x TBV with hidden assets and a SH yield of 3%.
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The market is valuing today’s business as though its operating business is already dead.
At today’s price, we can buy the entire company for just 0.6x TBV.
The market cap is ¥12.45b despite the business owning approximately ¥21.3b of conservatively calculated real-world tangible assets.
Even after stripping out questionable assets and deducting every liability, investors are paying roughly 60 cents for every ¥1 of hard asset value.
The absurdity becomes even clearer when you look at the operating business.
After netting out cash and marketable securities, the effective enterprise value falls to roughly ¥3.38b.
The sustainable owner-adjusted FCF is ¥900m per year.
In other words, the entire operating business could theoretically repay its acquisition cost in less than four years through normal cash generation alone.
Yet this is not a distressed company.
Over the last five years, revenue has increased from ¥11.6b to ¥14.79b.
Operating margins have expanded materially.
Operating cash flow has remained consistently positive through inflation shocks, supply chain disruption, geopolitical turmoil and industry headwinds.
The balance sheet has accumulated more than ¥12b of combined cash and liquid securities.
Here are the valuation ratios:
NCAV = 2
TBV = 0.6
EV/FCF = 3.7
P/FCF = 13.8
For the current valuation to be rational, the market must be correct that the business is entering terminal decline.
The reality appears very different.
At this point, it seems far easier for the stock price to re-rate upwards than for the business to actually die.
Let’s take a look…