Tiny deep value company buys division from uneconomic seller. Stock is cheap with 3% dividend. ¥3,110 share price vs ¥8,522 of NCAV + Investments. Trades at 5x OP and P/E of 7 (EPS forecast of ¥445)
Thank you for this excellent write-up. Your hypothesis about Sumitomo "giving away" their subsidiary to protect their reputation is possible. But the recording of negative goodwill could also just indicate that asset value of the acquired company was overstated and/or liabilities understated. Time will tell.
The division was re-capitalized before the sale. You can look at the financials the Q after the acquisition and compare to pre-acquisition numbers. They acquired assets like cash+securities. Even if we totally ignore the other assets, securities+current assets net of all liabilities increased post acquisition!
Current assets jumped from 16 billion to 26 billion post acquisition. Investments jumped from 6.5b to 10.5b and total liabilities increased from 14b to 23.3b.
The Q after the acquisition the value of current assets+investments minus total liabilities jumped to 13.2 billion from 8.5 billion.
With this conservative look we are only measuring current assets+investments. They acquired some other real assets too. Liabilities could technically be understated, but like I said, I've seen a bizarre deal like this before with Cave. The negative goodwill gain on that deal did not even remotely come close to capturing the economic gains Cave got from the deal. They basically bought an amazingly profitable mobile game developer for less than free! The biz has since absolutely minted money as they do work for a top game in JP that has been a top grosser now for over a decade. Stable+highly profitable for less than free!
Thank you for this excellent write-up. Your hypothesis about Sumitomo "giving away" their subsidiary to protect their reputation is possible. But the recording of negative goodwill could also just indicate that asset value of the acquired company was overstated and/or liabilities understated. Time will tell.
The division was re-capitalized before the sale. You can look at the financials the Q after the acquisition and compare to pre-acquisition numbers. They acquired assets like cash+securities. Even if we totally ignore the other assets, securities+current assets net of all liabilities increased post acquisition!
Current assets jumped from 16 billion to 26 billion post acquisition. Investments jumped from 6.5b to 10.5b and total liabilities increased from 14b to 23.3b.
The Q after the acquisition the value of current assets+investments minus total liabilities jumped to 13.2 billion from 8.5 billion.
With this conservative look we are only measuring current assets+investments. They acquired some other real assets too. Liabilities could technically be understated, but like I said, I've seen a bizarre deal like this before with Cave. The negative goodwill gain on that deal did not even remotely come close to capturing the economic gains Cave got from the deal. They basically bought an amazingly profitable mobile game developer for less than free! The biz has since absolutely minted money as they do work for a top game in JP that has been a top grosser now for over a decade. Stable+highly profitable for less than free!