9687.Japan - KSK Co Ltd

[oddballstocks]

Not a lot of writeups on out of the way stocks here so I figured I might as well contribute something.

 

KSK is a Japanese small cap IT services company.  They do software design for semiconductors as well as design, maintain and build out corporate networks.

 

The company is interesting because it's trading right around net cash.  The business is profitable and generates free cash which has been paid out as a dividend and used to buy back shares.

 

This isn't an incredible business, nor a compounding machine but it's a marginal business available for less than 2/3 NCAV.  If the stock just traded up to NCAV an investor would realize an 80% gain.  The stock trades on the Osaka exchange.

 

Here are some highlights:

-¥3.4b market cap ($42m)

-¥5.2b in cash and securities, only ¥40m in short term debt

-Net cash of ¥439/sh and discounted NCAV of ¥709

-Profitable for the past nine years

-3.3% dividend yield

-Management has been buying back shares in 100,000 chunks when possible.  About 16.5% of the total outstanding shares have been repurchased.

 

I have a bit more detail on my blog: http://www.oddballstocks.com/2012/03/trading-slightly-above-net-cash-ksk-co.html

 

I'd love to hear thoughts if anyone has them.  I'd also be interested in knowing if anyone else is buying stocks like this.  I picked up a few shares for my portfolio.

 

Nate

[twacowfca]

Not a lot of writeups on out of the way stocks here so I figured I might as well contribute something.

 

KSK is a Japanese small cap IT services company.  They do software design for semiconductors as well as design, maintain and build out corporate networks.

 

The company is interesting because it's trading right around net cash.  The business is profitable and generates free cash which has been paid out as a dividend and used to buy back shares.

 

This isn't an incredible business, nor a compounding machine but it's a marginal business available for less than 2/3 NCAV.  If the stock just traded up to NCAV an investor would realize an 80% gain.  The stock trades on the Osaka exchange.

 

Here are some highlights:

-¥3.4b market cap ($42m)

-¥5.2b in cash and securities, only ¥40m in short term debt

-Net cash of ¥439/sh and discounted NCAV of ¥709

-Profitable for the past nine years

-3.3% dividend yield

-Management has been buying back shares in 100,000 chunks when possible.  About 16.5% of the total outstanding shares have been repurchased.

 

I have a bit more detail on my blog: http://www.oddballstocks.com/2012/03/trading-slightly-above-net-cash-ksk-co.html

 

I'd love to hear thoughts if anyone has them.  I'd also be interested in knowing if anyone else is buying stocks like this.  I picked up a few shares for my portfolio.

 

Nate

 

I understand that a lot of small Japanese company owners like to have the credentialing associated with having their stock listed on an exchange.  However, few Japanese companies have an orientation that focuses on returning much value to minority shareholders.  Why do you think this company is different?

 

Buying back shares below NAV looks encouraging.  Is this intelligent capital management or were the shares repurchased or nother reason?

[oddballstocks]

twacowfca,

 

Thanks for the comment.  I don't think this company is any different with regards to capital allocation.  They pay an average dividend and have been steadily buying back shares since 2007.  I think the reason is that there's nothing else to do with the cash and this prevents it from piling up.  Management seems to like the current cash level but doesn't have much of an interest in letting it grow.

 

This company is really a small example of the Japanese market as a whole.  They would be so much better off being purchased or going private and returning money to shareholders.  Unfortunately the Japanese business environment doesn't encourage that, it actually encourages companies to run for the employees which is what they've been doing.

[twacowfca]

twacowfca,

 

Thanks for the comment.  I don't think this company is any different with regards to capital allocation.  They pay an average dividend and have been steadily buying back shares since 2007.  I think the reason is that there's nothing else to do with the cash and this prevents it from piling up.  Management seems to like the current cash level but doesn't have much of an interest in letting it grow.

 

This company is really a small example of the Japanese market as a whole.  They would be so much better off being purchased or going private and returning money to shareholders.  Unfortunately the Japanese business environment doesn't encourage that, it actually encourages companies to run for the employees which is what they've been doing.

 

Yeah, I can understand that. I'm very happy that our company's Associates (employees) are now able to share about half the operating profits of the business.