An Expanding Japanese Business for 5.5x FCF
Also trading below TBV with a 4% shareholder yield while we hold the stock.
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Today’s Japanese business has increased total revenue from roughly ¥14b to almost ¥24b since FY2022.
It has also spent years building a much larger presence in the US, where revenue grew another 58% last year.
That US operation has also just turned profitable.
They’ve previously been ‘burning cash’ to get the operation up and running and fund the expansion.
But it’s now bearing fruit.
The whole business has been operating for over 70 years.
After my usual adjustments, it generates around ¥1b per year in total owner-FCF.
We can buy it today for a total market cap of around ¥9.31b.
After adjusting for debt-like obligations and liquid assets, the enterprise value is around ¥5.47b.
This gives us our ratio of 5.5 or a FCF yield of just under 20%.
There is an additional margin of safety in the tangible assets too.
The entire business trades at just 0.9x TBV, which essentially gives us the operating business, and all its future profits for free.
Obviously there are problems, this is Japan.
Profits are lumpy, and management has absorbed losses while establishing that US business.
But, after having a good look through the reports, it definitely looks like a serious mispricing to me.
Let’s take a look...