Analysis of Kaga Electronics Co Ltd (8154:TYO)

Here is a small update of the analysis of Kaga Electronics carried out at the end of last year.

Valuation & dividend

The price has slightly declined over the past few months, coinciding with a small drop in earnings and cash flow announced for the fiscal year (01.04.17-31.03.18). Despite this, the rest of the fundamentals have improved as we will see later.

The price is therefore still very attractive and currently stands at:
- 11.58 times current recurring earnings
- 13.82 times average recurring earnings
- 1.08 times tangible assets
- 0.32 times sales
- 9.35 current free cash flow
- 11.34 the average free cash flow

EBIT and EBITDA amount to 14,43% of enterprise value, which confirms the attractive valuation of Kaga Electronics.

The dividend yield is 2.16%, for an average annual growth of 14.87%. The payout ratio has increased slightly due to the slight drop in earnings, while Kaga has still continued to increase its dividend (it must be said that they could afford to). The payout ratio thus amounts to:
- 24,95% of current profit
- 29.78% of average profit
- 20.16% of current free cash flow
- 24.44% of average free cash flow

Absolutely all valuation and dividend indicators are therefore green!

Balance sheet & result

Cash reserves continue to improve, with a current ratio of 2.11 and a quick ratio of 1.72. Gross margin also increased very slightly, to 13.8%. Free cash flow margin now stands at 3.41% and net margin at 2.75%.

The only small misstep was profitability, with a drop in ROA to 5,01%. Cash flow profitability of assets rose to 7,78% and ROE to 9.2%.

The long-term debt ratio continues to decline, at 2.44% relative to assets. The entire debt represents only 0.12 times equity and it would take Kaga just over a year to amortize it using its average free cash flow.

As for the number of shares in circulation, it remains stable, thus avoiding any dilution of shareholders' assets.

Conclusion

Kaga is a small, very cheap company, relatively little followed by analysts and institutions, with little debt and requiring relatively little capital expenditure. It has very solid fundamentals, which is corroborated by a Z-Score (Altman) of 3.8 and an F-Score (Piotroski) of 8. So it is not tomorrow that Kaga Electronics risks going bankrupt.

It should be noted, however, that the title is quite volatile, with a coefficient of variation of 20.55% and sensitive to market fluctuations, with a beta of 1.11.

I believe that the stock is currently trading at a nice discount, around 30%, and that the buy signal is therefore still strong.