Analysis of Tsubakimoto Kogyo Co Ltd (8052:TYO)

TSUBAKIMOTO KOGYO CO., LTD. is a Japan-based company established in 1916, which is mainly engaged in the sale of industrial machinery and equipment and materials.

The company with the unpronounceable name is a real bargain. It trades at 8.2 times its recurring earnings, 0.85 times its tangible book value, 0.2 times its sales and 6.5 times its free cash flow. The dividend is not far behind with a yield of 2.5% for a distribution ratio of only 20.5%. There is therefore still a lot of room for Tsubamachin to increase the income it offers to shareholders or to invest in the development of the company. The company has also very regularly increased its distributions in the past, at an average annual rate of 7% (last eight years).

Just like the dividend, the profit, cash reserves and asset values are growing over the long term, which proves the strength of Tsubakimoto's business model. The company is clearly succeeding in creating shareholder value and this is also reflected in the share price, which has more than doubled in five years.

Cash reserves are quite good, with a current ratio of 1.3 and a reduced liquidity ratio of 1.2. This allows the company to meet its short-term financial obligations. Gross margin is up, at 13.9%, return on assets is also up, at 3.84%, while the debt ratio has fallen to ... 0%! To top it all off, let's note that the number of shares outstanding remained stable between 2016 and 2017 and even fell twice between 2015 and 2016 and between 2014 and 2015.

Tsubakimoto is a century old. It has been through major economic, financial and political crises, not to mention a few major wars along the way, with two H-bombs on its face to top it all off. And Tsubamachin is still there, faithful to her post, stronger than ever.

Despite the sharp rise in share price in recent years, the company is still trading at less than half the value it was in 1990, before the Japanese bubble burst. In fact, I believe the share price should double in the next few years, as should the dividend.

I've just taken a position on this stock.