Funny how a slow steady rerating is satisfying.
How about the steady rerating the past few weeks? (sorry, couldn't help myself .. )
I bought some shares the past few days. According to the latest quarterly they now have close to 10b in cash vs a 14b market cap. It seems like an absolute no-brainer for KKR to unlock the value on the balance sheet. Key issues are: will they do it quickly and will they screw minority holders (for example by doing a take-under) or treat them fairly (for example by pushing for a special dividend or share buyback). Also the question remains whether KKR can pull things off in Japan.
That said, if KKR pushes for a special dividend the company can easily pay out 8b yen. Valuing the stub at 8x earnings yields another 9b yen or so for a ~25% upside. And I think that's actually conservative: the company can probably sustain a larger return of capital and the stub has a very decent ROIC, generates decent cashflow and has a PE majority owner that will be looking for cost savings / synergies. And you can buy it at a ~3.5x ex-cash P/E. I like it.
Another interesting Japan idea was featured on VIC a few weeks ago: PanaHome
. This is like the worst case scenario that could happen with Tokyo Radiator. Panasonic owns ~40% of PanaHome and tries to buy it on the cheap. A Hong Kong activist has bought 5% of PanaHome, is arguing the price is too low and goes to court. From the write-up:
They are litigating the fair value appraisal in Japanese courts and petitioning other shareholders in front of an upcoming June shareholder vote. Furthermore, Oasis has positioned the deal as a broader test of Japanís commitment to the corporate governance reforms that have been advanced under Prime Minister Shinzo Abe. Many of these reforms deal specifically with improving the protection of minority shareholders. As a result, the PanaHome deal is receiving high levels of scrutiny from both the media and business community.
Oasis believes that Panasonicís offer provides no credit for PanaHomeís large cash balance and that the fair value for the business is closer to •1300-•1600 per share when factoring in the cash, an analysis that is fairly self-evident. Oasis also believes that the process and methodologies used by PanaHomeís board to justify the takeover price are highly flawed. For example, the exchange ratio was set below the midpoint of the calculated fair value ranges and the comparable peers analysis includes a number of incomparable small and illiquid peers while omitting some very relevant peers.
At first glance the activists seem to have a point: to me the price paid looks (by Western standards) way too low. Currently PanaHome is trading at a 1.5% premium to the original offer. Most likely Panasonic buys the company on the cheap and you lose 1.5% but if the activists win the price could easily go up 30%. I have no position - still pondering whether this is a good idea or not. How likely is a 5% foreign activist to succeed? These guys did have some victories
in the past - no total clowns.