Below Cash Basket: Japanese Edition

“A basket of these stocks (those selling for below 2/3 of their adjusted net asset value) have outperformed the indexes by wide margins over many different time periods.”

– Benjamin Graham

Below is a brief description and snapshot of just over half a dozen Japanese companies listed on the Tokyo Stock Exchange which are currently valued below the cash on their books as of June 23, 2012.

Now before going forth, a word of caution. Most of the companies which i am about to mention do not possess any visible competitive advantages and in some cases, operate in capital-intensive industries. Furthermore, their management teams may not exactly be “shareholder oriented”. When such facts abound, some losses are usually bound to occur.

With that said, all of the companies selected are reasonably easy to understand, in a majority of the cases, their operations have been profitable for the past 5-10 years (sometimes more) and without exception none have any short or long-term debts. Couple this with the fact that you are getting these businesses for free (you are not even paying 100 cents on the dollar for the cash) and you have a very large margin of safety present, in spite of some of the facts which I mention in the paragraph above.

The biggest risk in such a case is the time value of money. While a very real one, the alternatives are not much better.  20 year BBB rated debt, which is the cutoff for an investment grade credit rating currently yields only 6.69%, while current Money Market rates are 1.00%. Presented with such unattractive choices, I will gladly jump at the opportunity to earn a prospective 15-20% return (in some cases more) over a multi-year interval while taking on substantially less risk due to the large margin of safety inherent at the current prevailing prices.

Without further ado, the aptly christened “J-Nets”:

Kaneso Co. Ltd.

The company manufactures water-repellent equipment and metal products used by the construction industry such as metal gradings, manhole lids, conduit covers and drainage fixtures.

Kaneso has no outstanding debt (either short or long-term) and also offers an annual dividend yield of approx. 4.67%.

Valued below cash which stands at 5,410 Bil. Yen compared to current market cap of 4,579 Bil. Yen as at June 23, 2012. Adjusted NCAV: 12,306 Bil. Yen.

Nihon Decoluxe Co. Ltd.

Nihon Decoluxe manufactures and distributes chemical adhesives as well as other board/sheet products made from chemicals and other materials.

Nihon also has no current or long-term debt and provides an annual dividend yield of 3.47%.

Current market cap of 4,107 Bil. Yen as compared to cash & equivalents of 4,249 Bil. Yen. Adjusted NCAV stands at 4,938.6 Bil. Yen.

Noda Screen Co. Ltd.

Noda Screen operates in two segments via two wholly owned subsidiaries, the first processes and distributes plastic packaging substrates and printed circuit boards, while the second manufactures and distributes fluoride chemical products.

The company has been profitable in each of the past five years and enjoys a slightly better net profit margin than some of the others mentioned at around 8%. Noda also possesses no short or long-term debt and distributes a small annual dividend yielding 2.3% (which is still well above the current money market and long-term GIC rates which range between 1-1.55%)

Valued below cash which stands at 3,332 Bil. Yen compared to market cap of 2,732 Bil. Yen as at June 23, 2012. Adjusted NCAV: 3,507.3 Bil. Yen.

Global Food Creators Co. Ltd.

The company is a wholesaler of processed seafood and other meat and agricultural products. The company has been in operation since August 1972 and also sells food stuffs outside of Japan.

GFC has no outstanding debt and offers an annual dividend of approx. 2.8%.

Valued below cash which stands at  5,112 Bil. Yen compared to market cap of 5,105 Bil. Yen. Adjusted NCAV comes out to 5,195.4 Bil. Yen.

Natoco Co. Ltd.

Natoco manufactures, distributes and sells various types of industrial paints for metals, building materials as well as auto repair.

To give you an idea of just how cheap the company’s valuation is, consider these facts:

– P/E: 9.7

– P/B: 0.37

– P/S: 0.34

All this for a consistently profitable company (albeit marginally so) with no outstanding debt of any kind and paying an annual dividend yielding 2.56%.

Valued below cash which stands at 5,302 Bil. Yen compared to current market cap of 4,592 Bil. Yen as at June 23, 2012. Adjusted NCAV: 5,402.6 Bil. Yen.

Shinko Shoji Co. Ltd.

Shinko Shoji Co. Ltd. sells electronic parts and equipment such as integrated circuits (IC) and semiconductor devices. The Company’s products include liquid crystal (LC) display modules, condensers, ferrite cores, coils, power supplies and sensors among others.

No short or long-term debt of any kind for Shinko Shoji either, company has been profitable for the past  ten years and also offers a rather large 4.72% annual dividend yield.

Valued below cash which stands at 17,710 Bil. Yen compared to market cap of 15,783 Bil. Yen as at June 23, 2012. Adjusted NCAV: 19,318 Bil. Yen.

Chuokeizai-Sha Inc.

Chuokeizai-Sha, despite the difficult to pronounce name the company is involved in a rather simple business. That of publishing economics, finance, law, accounting, and tax related books and periodical magazines as well as business related books in Japan.

The company, unsurprisingly has no debt outstanding and distributes a dividend yielding 4.04% per annum.

Valued below cash which stands at 1,848 Bil. Yen compared to current market cap of 1,411 Bil. Yen as at June 23, 2012. Adjusted NCAV stands at 2,310.3 Bil. Yen.

Finally, much credit must be given to a number of different people, namely my friend Taylor Conant who writes at Valueprax and who sent me a comprehensive list of about 42 Japanese companies whom were all valued at, near or below NCAV a few months back and from which the above below cash basket was derived.

In turn, Taylor aggregated some of the Japanese names from a number of individuals whom have come across some very compelling opportunities on the Japanese market and have written about them extensively, including Nate Tobik, Whooper Investments, Adam SuesGeoff Gannon & Gurpreet Narang. If i excluded anyone, I sincerely apologize.

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One thought on “Below Cash Basket: Japanese Edition

  1. Pingback: More negative EV stocks from Theodor Tonca – Whopper Investments | Whopper Investments

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