Analysis of Kaneko Seeds Co Ltd (1376:TYO)

KANEKO Seeds CO., LTD. is a Japanese company that has been active since 1947 in the sale of seedlings, gardening products, agrochemicals, agricultural facilities, as well as the design and construction of hydroponic plants, greenhouses and gardens. The company has 653 employees.

Valorization

Kaneko is trading at an attractive price of 12.8 times recurring earnings, 1.08 times tangible book value, 0.33 times sales and 12 times free cash flow. The dividend is certainly quite modest, with a yield of 1.64%, but it is explained by a prudent distribution ratio of 20.95% relative to earnings and 19.63% relative to free cash flow. The Japanese company therefore still has some slack under the pedal to continue to increase its dividend in the future. It has done so nicely but surely in the past, at an average annual rate of 4.4% over the last five years.

Balance sheet & result

Just like the dividend, profits, cash reserves and asset values are growing over the long term, which proves the strength of the small seed seller's business model. Kaneko is clearly managing to create value for its owners over the long term and this is reflected in the share price which has doubled over the last five years.

Liquidity reserves are sufficient to meet current financial obligations, with a current ratio of 1.48 (improving) and a liquidity ratio of 1.19.

The gross margin is not huge, at 15.9%, but it is increasing. The free cash flow margin amounts to 2.75%. The return on assets is also quite modest, but increasing, at 3.43%. The cash flow profitability of assets is slightly higher, at 4.10%.

As for debt, it is simply non-existent. As for the number of shares outstanding, it is stable, which avoids any dilution of shareholders' equity.

Conclusion

With Kaneko we are certainly not facing a profitability monster. It is rather a small, quiet company, which generates cash and profits on a very regular basis. It is helped in this by a low need for capital expenditure and non-existent debt. Its sector of activity also protects it from major economic and financial risks, which is confirmed by a beta of 0.87. Kaneko is the kind of stock that you can buy and forget about in a corner.

The stock is still below its all-time highs from the early 90s. I believe the stock is still quite heavily undervalued and should gain several dozen % to reflect its intrinsic value. The dividend should do at least as well.

I just took a position on Kaneko,