Author Topic: NTDOY - Nintendo  (Read 73040 times)

moore_capital54

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NTDOY - Nintendo
« on: February 08, 2012, 11:48:43 AM »
Over the last 2 months we have built a significant position in Nintendo.

I thought I would share this idea with the board as it is the type of contrarian value investment that I love and reminds me of others which have produced fantastic results for us over the years.

What we have here is a company that is currently valued at a market cap of $19.5B USD. However, Nintendo holds over $13B in cash and liquid securities. When subtracting the cash we get an EV of only $6.5B.

Our thesis is that the earnings power of the business on a normalized basis, works out to roughly $2-3B a year.

We can go on and on about what Nintendo has done wrong, and how they desperately need a hot product. History teaches us that at least once every decade, Nintendo is able to launch such a product and when it does it produces significant FCF. FY 2011 Nintendo produced $800mm of FCF, and this was considered a terrible year.

Another catalyst is the dividend reinstatement which was suspended on September 29th, but historically ran around 1-2B a year. A reinstatement would mean the current valuation would produce between 5-10% dividend yields.

I expect NTDOY to double over the next 24 months quite easily, with very little downside risk.

Enjoy!
« Last Edit: February 08, 2012, 03:47:43 PM by Parsad »


benhacker

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Re: Nintendo - NTDOY
« Reply #1 on: February 08, 2012, 12:12:32 PM »
Hey Moore, thanks.  This had fallen off my watchlist for some reason.

Hmm.... Interesting.

Ben
Ben Hacker
Beaverton, Oregon - USA

misterstockwell

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Re: Nintendo - NTDOY
« Reply #2 on: February 08, 2012, 12:21:06 PM »
It's a buggy whip company with a lot of cash. Times have changed. Smartphones, tablets, ultrabooks, even e-readers can all play games that are free or very low cost. Wii consoles are beyond uncool. They would need to reinvent themselves. It's possible, but I think the risk is much higher than you are calculating.

eclecticvalue

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Re: Nintendo - NTDOY
« Reply #3 on: February 08, 2012, 12:32:04 PM »
NTDOY seems interesting. One of the catalysts would be if the Wii U becomes popular and it seems like an interesting console so far. A main issue that has been holding back Nintendo is the handheld market. Smartphones and tablets have been taking over gaming, since Android and Apple users can buy games for a very cheap price instead of buying a handheld gaming device and cartridges that can cost $20+. I would have to do more due diligence of where Nintendo makes its money.

tombgrt

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Re: Nintendo - NTDOY
« Reply #4 on: February 08, 2012, 12:32:16 PM »
Thanks for sharing Moore.

Misterstockwell made an interesting point imo but on the other hand I believe there should be some value in Mario, Luigi and their friends as 'hidden assets' and the brand in itself.  Console gaming is still very much alive and there is a very real difference between some "B-games" on tablets etc. and actual gaming. Not sure of how much of this 'actual gaming' is a commodity tho.
« Last Edit: February 08, 2012, 12:35:13 PM by tombgrt »

alwaysinvert

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Re: Nintendo - NTDOY
« Reply #5 on: February 08, 2012, 01:03:52 PM »
Why do they suspend the dividend when they generate some FCF and have huge cash reserves? Are their coming investments that high?

Counting on the same cashflows from the handheld side as before is highly optimistic though, with both smartphones and the Vita cutting into their market.

I really don't see why they take the risk of producing their own stationary consoles, though. They never seem to be able to rack up satisfactory 3rd party support anymore (perhaps due to squeezing the developers too much in the past). The Wii has sold in almost 100m units and the profit this year has been pretty abysmal despite them being the clear winner this generation. I'd imagine they would be able to make relatively much safer money if they went third party and developed across all major platforms.

On the other hand, everybody said Nintendo was toast before the release of the Wii, too.

ValueBuff

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Re: Nintendo - NTDOY
« Reply #6 on: February 08, 2012, 02:35:21 PM »
I just looked at this earlier this week.

They have a great gaming franchise with Mario and Link.  They are coming out with a new console later this year.  That should drive the stock. 

I bought a position on monday...glad to see someone else saw this one.

bengrahamofthenorth

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Re: NTDOY - Nintendo
« Reply #7 on: February 09, 2012, 08:03:18 AM »
I'm a pretty big gamer. It really seems like Nintendo is going to get caught in the middle. Hardcore gamers pick up high end systems like the new xboxs and playstations, while everybody else is more than happy with their smart phones and tablets. The wii was a great hit because it appealed to a mass audience who wanted fun games, now those consumers have iphones and ipads which have thousands of games for a fraction of the price or free. Nintendo should focus on software for the competition (console and mobile) much like Sega did after the dreamcast died, but with the new wii coming out, I don't see that happening and capital allocation is a serious concern. I would be extremely surprised if future profitability is similar to historical numbers.

valueInv

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Re: Nintendo - NTDOY
« Reply #8 on: February 09, 2012, 09:11:30 AM »
I just looked at this earlier this week.

They have a great gaming franchise with Mario and Link.  They are coming out with a new console later this year.  That should drive the stock. 

I bought a position on monday...glad to see someone else saw this one.
It's been on my watch list for a while but haven't gotten a change to analyze it. How much do you think their Mario and Link franchises are worth?

alwaysinvert

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Re: Nintendo - NTDOY
« Reply #9 on: February 09, 2012, 09:32:44 AM »
I just looked at this earlier this week.

They have a great gaming franchise with Mario and Link.  They are coming out with a new console later this year.  That should drive the stock. 

I bought a position on monday...glad to see someone else saw this one.
It's been on my watch list for a while but haven't gotten a change to analyze it. How much do you think their Mario and Link franchises are worth?
The Zelda franchise is worth considerably less than the Pokémon franchise, anyhow.