If you are a Naruto fan, hi there! Read on even if otherwise.
TLDR: Company with lots of cash, good profit margins, steady profits and cash flows. Net of cash, it is trading around 4x four year average profits.
The company started as and, to a large extent, still is game developer to IP owners. Claim to fame is Dragon Balls Z whose IP is owned by Bandai Namco. It derives majority of revenues from various versions of this game.
Obviously it developed few other games but no blockbusters so far, not even sleeper hits. There are some in pipeline but no one knows if they can become big. (Risk 1)
Revenue has been pretty stagnant for last 12 quarters. But costs going up slowly as company is hiring more people to develop own IP and games. (Extension of risk 1)
In an effort of "related diversification" went into physical gaming arenas and ticketing. This only bloated cost structure, particularly with Covid impact. (Risk 2)
As with every other gaming company with one successful game and steady cash flows, it is fashioning itself as incubator of game developers and even launched a fund to invest in other gaming and content companies. (Risk 3)
It has been betting on India for both kids entertainment IP and games and been investing in local mobile game companies. (Extension of risk 3)
Entire market is at all time highs and this stock at one year low. (Risk 4) This needs a major catalyst for it to budge.
While no cure to risks 1&3, at least predictable in advance, they did reduce fixed costs associated with risk 2.
Now to good parts: 1. Has valuation of 52 billion yen vs cash of 28 bn yen as on 31 March 2021. 2. Highly profitable with good operating cash flows
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Generally cash on balance sheet doesn't mean anything to investors as managements find creative ways to destroy it. This company also been down that path. Only partially course corrected even now. But is finally getting serious about returning cash to investors. In addition to continuing dividends, it announced buybacks for 3.57% of outstanding stock. That too at a good time as price has been beaten down. Has already carried out 40% of it in last 1 month.
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The buybacks will cost 1.8-2 bn yen. Post adjusting for buybacks, cash on balance sheet will be 26 bn and market cap will be 50 bn. The numbers come to same even if I account for current assets and liabilities. Remaining value is 24 bn against which company generates 6 bn yen profit after tax it has been generating in each of last 4 years. Meaning 4x PE.
Welcome your views..
Most of the data is from company IR filings on their site. Information only, not advice to buy or sell. Disclosure: invested
Submitted June 17, 2021 at 07:24AM by everyonetomoon https://ift.tt/3guzdue
