Analysis of Saftec Co Ltd (7464:TYO)

I introduced you to the Japanese company Safetec It's been a year already and it's time for a little update.

 Valuation & dividend

Despite the sharp rise in the price since last year, despite everything that has happened on the stock market, the stock remains very attractive. In fact, the price stands at:

• 10.16 times current recurring earnings
• 14.85 times average recurring earnings
• 0.87 times book value
• 0.88 times tangible assets
• 0.41 times sales
• 6.5 times current free cash flow
• 12.35 times the average free cash flow

De plus, l'EBIT et l'EBITDA se montent à 12.03%, respectivement 13.55% de la valeur d'entreprise. Ceci confirme le prix toujours très intéressant de Safetec.

On the dividend side, it's not too bad either, since the yield amounts to 2,71% (an increase of 9,46% per year on average over the last five years). The company is prudent in terms of the money it distributes to its shareholders. Indeed, the dividend amounts to:

• 27.50% of current recurring profits
• 40.18% average recurring profits
• 17.60% of current free cash flow
• 33.42% of average free cash flow

Saftec therefore has a good margin not only to continue paying its dividend, but also to increase it.

Balance sheet & result

Just like the dividend, profits, cash reserves and assets are growing over the long term, which proves the solidity of the business model of this very small Japanese company. Saftec clearly succeeds in creating value for its shareholders and this is reflected in the share price which has more than doubled in the last two years.

Les liquidités sont correctes, avec un current ratio de 1.59 (en baisse) et un quick ratio de 1.30. Guère de souci donc pour payer les factures. La gross margin est très bonne, avec 47% (en hausse), avec néanmoins une marge de free cash flow et une marge nette moins alléchantes, de 6.33%, respectivement 4.05%. La rentabilité n'est également pas extraordinaire, avec un ROA de 3.70% (en hausse), une CFROA de 6.26% et un ROE de 8.59%. Voyons le côté positif, ce n'est pas cette rentabilité qui va attirer beaucoup de nouveaux concurrents, surtout que l'activité de Saftec (les panneaux de signalisation), ce n'est pas vraiment le truc sur lequel toute la planète business à envie de s'engouffrer. Comme je l'avais mentionné dans mon last article, there are not many traders and institutions who are interested in this Japanese micro cap.

The long-term debt to assets ratio, at 12.76%, is quite high, although down from the previous period. Saftec would still need twelve years to repay its entire debt using its free cash flow. However, total debt represents 0.84 times equity, which is still within the reasonable range.

The number of shares outstanding has been stable, or even slightly down, for five years, which is good news for shareholders.

Conclusion

Saftec est une toute petite entreprise, qui possède déjà une histoire de plus de 60 ans. Elle officie dans un secteur d'activité très défensif, ce qui est confirmé par un beta de seulement 0.53, pour une volatility de 12.15%. Il y a certes quelques potentiels d'amélioration, au niveau de la marge nette, de la rentabilité et de l'endettement. L'entreprise est d'ailleurs justement en train de soigner ces détails, ce qui se constate au niveau du F-Score (Piotroski), avec huit points sur les neuf possibles. Quant au Z-Score (Altman), il nous dit que l'entreprise japonaise se situe, avec 2.3, dans la zone grise, à savoir pas de risque imminent, ni de sécurité absolue.

Net margin, profitability and debt are certainly points to consider, but research has proven that it is their evolution rather than their state as such that is important. This dynamic is given to us precisely by the F-Score, which is known as a reliable indicator of the future performance of a stock. Research has also demonstrated the very clear superiority of Piotroski compared to Altman. All this makes me say that Saftec has much more assets than it seems at first glance.

Despite the strong rise in the stock since I bought it last year (50%), I believe that the stock can still gain a third of its current value and that the dividend should do the same. I am therefore of course still invested in Saftec. Whether it is still worth buying is another question. The margin of safety is obviously no longer the same as it was twelve months ago. On the other hand, stocks of this quality and at this price are really very rare at the moment...