a typical Japanese cash hoard …
This is not investment advice. Please read the disclaimer.
I might currently or at a later point in time own shares (economic interest) in mentioned or related companies.
You can read the pdf version including screenshots here.
Idea from: Asian Century Stocks’ weekly newsletter includes a nice section of buybacks. Infrequently I check names included, often Japanese companies with the typical outrageous cash hoard.
Hazama Ando is no exception. ASC’s Apirl 4th edition mentions a share buyback of almost 10% of its market cap. Which is huuuge and might be great capital allocation (but likely isn’t in the broader picture). Ist book value per share rose a lot over the last 10yrs (16% CAGR), with very high ROEs in FY’14 and FY’17 (ending March). ROE came down a lot and is around 10% now. If there was better capital allocation (no excessive cash hoard) returns might be interesting. But the cash hoard will persist since total return ratio seems to be targeted in the 60-70% range.
- The mentioned share buyback program is for a maximum of 10% of outstanding shares or 17m shares within one year (April 1, 2022 to March 31, 2023).
- An old program (Nov 10, 2020) for 18m shares max for JPY 10bn max did only make use of JPY 5bn as of March 31, with 5bn more to go. Yet, the original period was for November 16, 2020 to November 15, 2021. Thus, I find it hard to believe that both programs will end within time/soon and make use of maximum limits.
The company is doing civil enginerring work and building construction mostly in ist domestic market. These projects are often big tickets and often come with slim margins (big risks). This partially explains the cash hoard since Japanese culture wants to mitigate failure (bankruptcy) or upheaval (need to let go employees), etc.
- A quick pass becomes even easier when comparing with Shinoken, which grew BVpS higher, though ROEs came down to similar low levels from initially higher levels that were, additionally, more constant. Shinoken trades on a lower P/B, and seems of better quality to me with (hopefully) an ever bigger share of higher quality businesses. (Hazama wants to start facility management)
I could obviously be wrong here. The company’s business might be of much higher quality and/or returns could be great from here for various reasons. But a quick pass and moving on is a warranted decision for me.
I hope you enjoyed this post.
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