Thinking Points

  • Fisco published two reports this week.
  • Companies covered this week include: one specialty global manufacturer of precision springs and one management consulting firm.
  • Both companies have interesting qualities, but seem a little expensive at this time.

Fisco published two reports this week. One on Tanabe Management Consulting (TSE: 9644) and another on Advanex (TSE: 5998). In short, Tanabe Management Consulting is remarkably stable and Advanex has a stronghold in a niche product, but neither of them look particularly attractive from a valuation perspective at this time.

 

Tanabe Management Consulting (TSE: 9644)

Tanabe Management Consulting, as the company name suggests, is primarily engaged in the management consulting business. Secondarily, the company is engaged in Sales Promotion consulting.

Tanabe typically targets private sector mid sized clients, providing a wide variety of management consulting services ranging from management strategy, human resources, branding, etc all the way to M&A, and business succession planning.

Source: Company website

 

Tanabe’s financials are remarkably healthy and stable. Gross margins have stayed between 43 ~ 47% while operating margins came in between 6 ~ 11% over the last decade. The balance sheet is debt free, with an equity-to-asset ratio of 0.83.

Revenues have grown at a 2.39% CAGR and operating income at a 3.76% CAGR pace over the last ten years. The company currently trades at a 12.4 EV/EBIT, which is probably somewhere between fairly valued and a little bit overpriced. Either way, investors looking for stability ought to keep this company on a watchlist in case investor sentiment changes.

Read Fisco’s full report on Tanabe Management Consulting here.

 

Advanex (TSE: 5998)

Advanex is a specialty manufacturer of precision springs with a global presence. This snippet from Fisco’s report pretty much sums it up:

“Since the 1980s, Advanex has released many products that have become global hits and has gained top shares of the markets for these products. Advanex has held a 70% share of the Japanese market for tape pads for audiotapes, a 50% share of the global market for flat springs for videotapes, an 80% share of the global market for shutters for 3.5-inch floppy discs, a 50% share of the global market for hinges for cellular phones, and a 90% share of the Japanese market for center hubs for optical discs. Advanex also holds a 60% share of the Japanese market for springs to protect needles implanted in the human body.”

 

Source: Company site

 

Despite its technological edge, Advanex’s business performance has been less than desirable. Heavy capex, long product development lead times, and unstable profitability are the highlights. According to Fisco’s report, Advanex factories open for more than five years are profitable, and the newer ones drag financial performance. The company currently trades at 35 times EV/EBIT, but is expecting an operating income increase of 34.9% for fiscal 2019.

Read Fisco’s full report on Advanex here.

 

Fisco Wrap Up

Tanabe Management Consulting delivers remarkable stability and Advanex holds a niche technological advantage. Both companies offer interesting characteristics, but seem a little expensive at the same time. It may be prudent to sit tight and watch for now.

Author: Kenkyo Investing

Kenkyo Investing applies a value investing approach to Japanese equities, providing insights that are often unavailable to non-Japanese speakers.