Author Topic: 6411.JP - Nakano Refrigerators  (Read 7693 times)

bean

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6411.JP - Nakano Refrigerators
« on: January 09, 2015, 09:01:30 AM »
Nakano is a Japanese company that makes refrigerators for supermarket and convenience stores. Nakano is a high-quality business, itís undervalued, and the stock has a catalyst.

Business Quality:
In the last 10 years, Nakanoís lowest ROIC was 14.5%. Now that their cash conversion cycle has gone negative and operating income has risen above net fixed assets, Nakanoís ROIC is more than 150%. Recent business performance has been particularly strong. In the last two quarters, ROA, ROE and Gross Profits to Total Assets have averaged above 10%, 18% and 29% respectively. These are great numbers, and this is without adjusting for the companyís excess capital. Finally, over the last ten years, SG&A and outstanding shares are down, and tangible book value per share has compounded at greater than 10%.

Cheap:
EV/EBIT is less than 2, and capex has been only two-thirds of depreciation over the last 10 years. Also, P/B is 0.85% and P/E is 5.

Valuation:
Nakano could return up to 85% of its market cap in excess cash without hurting its core business. Using [6*average EBIT + excess cash - long-term liabilities] to conservatively estimate value, the stock has 75% upside.

Catalyst:
Nakanoís sales are set to increase dramatically as they help Seven&I (3382.JP) roll out more 7-11 stores etc in Japan. Bloomberg estimates that Nakanoís operating income will be more than double yoy and continue to be elevated for at least the next few years. The effects of Seven&I's growth can already be seen in Nakanoís last two quarters. Sales are up over 50%, gross margins have gone from the high-teens to the mid-twenties and operating income is up 2.5x. When the market notices the dramatic growth in earnings, there is a good chance the stock will reprice higher. Using these new estimates, Nakanoís stock could be a 3x.



mjohn707

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Re: 6411.JP - Nakano Refrigerators
« Reply #1 on: January 09, 2015, 04:08:24 PM »
I appreciate the idea!  If you don't mind me asking how long have you been investing in japanese stocks and how are you screening for them?
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bean

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Re: 6411.JP - Nakano Refrigerators
« Reply #2 on: January 09, 2015, 05:17:08 PM »
I first invested in Japan in 2013. For the initial screen, I use a Bloomberg Terminal. You can add your own custom formulas for NCAV discount, Greenblatt ROIC, number of years EBIT has been positive, number of years the share count has increased etc.

mjohn707

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Re: 6411.JP - Nakano Refrigerators
« Reply #3 on: January 09, 2015, 06:23:01 PM »
Are you using a basket approach or concentrating on your best ideas?
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west

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Re: 6411.JP - Nakano Refrigerators
« Reply #4 on: January 09, 2015, 06:40:26 PM »
My brief two cents: I own this guy.  It was originally going to be in my list of companies that I posted back in... October?  But I (irrationally?) had a hard time recommending a compnay that had just popped.  Looks like it's come back down since then.

Nice writeup bean!  And thanks for posting.

bean

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Re: 6411.JP - Nakano Refrigerators
« Reply #5 on: January 11, 2015, 10:31:51 PM »
Are you using a basket approach or concentrating on your best ideas?

Overall a basket approach. None of the Japanese companies exceed 1% of my portfolio.

rich379

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Re: 6411.JP - Nakano Refrigerators
« Reply #6 on: February 16, 2015, 05:17:22 AM »
Big price change last couple of days.

Has anyone else read the Dec 2014 financial overview (created on Feb 10th according to pdf properties)?
http://www.nakano-reiki.com/ir/pdf/H2612IRG.pdf
or via google translate:
http://translate.google.com/translate?hl=en&sl=ja&tl=en&u=http%3A%2F%2Fwww.nakano-reiki.com%2Fir%2Fpdf%2FH2612IRG.pdf&sandbox=1

If I am correct, it seems they are forecasting a 33% drop in revenue for 2015 and a 76% drop in earnings. I guess this could explain the price action.

Anyone have an opinion or more information?

Rich379

bean

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Re: 6411.JP - Nakano Refrigerators
« Reply #7 on: February 16, 2015, 06:54:26 AM »
Correct. The good news is that 2014 EBIT almost doubled on the back of increased sales to Seven&I. All this income has helped make the rock solid balance sheet even stronger. The bad news is that management estimates EBIT will drop 77% in 2015. I donít see a change in Seven&Iís expansion plans, so they either found another refrigerator supplier, or they bought enough inventory in 2014 to last them through 2015.

This kills the catalyst. Earnings are not going to be elevated for the next few years. My updated valuation for Nakano is now 37B (6 times 2015ís low EBIT + excess cash - all long-term liabilities). The current market cap is 21.1B.

Looking back, the big risk here was that Nakanoís future earnings were dominated by one customer. Fortunately, the company was so cheap, that even with EBIT now estimated to drop 77%, there is still ~75% upside in the valuation.

hillfronter83

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Re: 6411.JP - Nakano Refrigerators
« Reply #8 on: May 24, 2017, 06:50:40 AM »
stock up almost 18%. IB had some brief news about repurchase program. But I can't find anything in detail? Anybody following this name?