Analysis of Broadcasting System of Niigata Inc (9408:TYO)

You may remember this tiny Japanese company I told you about just over a year ago: Broadcasting System of Niigata. Derrière ce doux nom se cache une organisation active depuis 1952 dans la radio-télévision, mais aussi dans l'hôtellerie, la restauration, la construction et l'real estate.

Valuation & dividend

While the rest of the Japanese market follows a negative trend, BSN manages to hold its own. The share price had fallen during 2018, but recovered very well in the final months of the year. Despite this relative strength, BSN is still an extremely attractive stock. Indeed, it stands at :

• 11.24 times current recurring earnings
• 8.89 times average recurring earnings
• 0.38 times book value and tangible assets
• 0.29 times sales
• 3.39 times current free cash flow
• 4.47 times average free cash flow

It's really very cheap! EBIT and EBITDA amount to 19.12% of enterprise value, which clearly confirms that BSN is a very attractive opportunity.

Si l'on se focalise uniquement sur le dividende on pourrait pourtant avoir une impression très différente, puisque le rendement ne se monte qu'à 0.89%. La croissance annuelle moyenne de distributions ne se monte d'ailleurs qu'à 3.13% sur ces cinq dernières années. Ces mauvais chiffres doivent cependant être relativisés du fait que BSN ne distribue qu'une part infime de son bénéfice à ses actionnaires. Le distribution ratio s'élève en effet à :

• 9,96% in recurring earnings
• 7,88% average recurring profit
• 3.01% of current FCF
• 3.97% of average FCF

The Japanese micro-cap therefore has substantial scope not only to secure its dividend in the future, but above all to increase it.

Balance sheet & result

One of the explanations for this very cautious payout ratio and slow dividend growth lies in earnings. Earnings have been on a downward slope for several years now. This is not catastrophic, however, as BSN has also managed to increase the value of its assets and its cash reserves. In spite of this weakness, the Japanese company still manages to create value for its shareholders, as can be seen from its share price, which has doubled over the last five years. The fickle nature of earnings is well known. If profits were to rise again, the impact on the dividend and share price would be immediate.

Les réserves de liquidités sont très confortables, avec un current ratio de 2.34 (en hausse) et un quick ratio de 2.29. La gross margin est assez bonne, avec 26.6% (en hausse), ce qui ne se reflète pas trop malheureusement sur la marge nette (2.55%). C'est un peu mieux par contre pour la marge de free cash flow (8.46%).

These figures confirm what we've already seen with the valuation ratios and the progression of earnings and cash reserves: BSN is very good at creating cash, a little less so at profits. In terms of profitability, we're in exactly the same scenario, with an ROE of just 3,38%, a CFROA of 8,40% and an ROA of 2,21% (down).

From the point of view of indebtedness, nothing to complain about, since the ratio of long-term debt to assets stands at 5% (down). All of BSN's debt, which has been falling for several years, could be wiped out with average free cash flow in less than two years. Moreover, debt represents only 0.15 times shareholders' equity. Now that's solid!

It's also worth noting that the number of shares outstanding has been stable for several years, which is a good thing for the shareholder who sees his share of the cake remain constant.

Conclusion

Cette minuscule entreprise de seulement 750 employés est totalement en dehors des radars des institutionnels, ce qui explique notamment son prix attractif. La volatility est tout de même assez haute, avec 17.54%, mais compensée par un beta de seulement 0.59. Cette prédisposition était d'ailleurs fort appréciable en 2018.

The Z-Score (Altman), at 2.6, is in the grey zone. No absolute safety, but no imminent danger either. The F-Score (Piotroski), with 7 points out of 9, tells us that BSN is a very solid company. Remember that the F-Score is a good indicator of a stock's future performance.

I acquired this lovely specimen at the end of 2017, realizing a small 10% gain. I reckon BSN should almost double again to reflect its intrinsic value, and the dividend should do at least as well. I therefore intend to stay invested. Nevertheless, for the time being, I'm not going to strengthen my position, given that the Japanese market is still in a downtrend.