Fujishouji (藤商事, security code 6257) is a public company trading on the Jasdaq stock exchange. I found this entity by trawling through a hundred or so quarterly reports of different companies. I ran an initial share screener set to filter out shares that were unlikely to be scandalously cheap based on some balance sheet metrics.
The company is headquartered in Osaka and makes Pachinko and Pachislot machines. Interestingly, one machine they sell is an adaptation of the anime 地獄少女 (Jigoku shoujo, probably best translated as “Hell girl”) which particularly appealed to my aesthetic tastes. They have a lovely site dedicated to it that one can peruse. In any case what sparked my interest in the shares of the company was not any appeal of their products nor any bullishness on their industry, but the unusual amount of value contained within their balance sheet and the relatively steady improvement of said balance sheet since listing on the Jasdaq in 2007.
According to calculations I have made from the company’s quarterly figures there is net cash per share (that is, cash minus total liabilities) of ¥67,084, net current assets (current assets minus total liabilities) of ¥118,740 per share and book value of ¥172,039 per share. Book value has grown from ¥140,006 per share in the December 2005 report to the aforementioned ¥172,039 in December 2011, a modest 3.49% compound annual growth rate. Of course this rate of growth is yen denominated, so the trend of flat to small increases in the yen’s purchasing power must also be taken into account, as well as the very low interest rates obtainable among yen denominated fixed income securities. Furthermore, dividends amounting to ¥4,000 per year were paid in the fiscal years ending March 2006 and March 2007, while in each of the years following this ¥4,500 per share has been returned to shareholders.
There have been two modest share buybacks occurring in Q4 2010 and Q1 2011. Both buybacks reduced share count by 3,000 shares, from 254,955 shares before the buybacks to 248,955 shares following the completion of the second buyback, a cumulative reduction of 2.33% of outstanding float.
Considering the security recently traded at a price of ¥89,900, it would seem to be an investment with a significant margin of safety. Using the net cash position of ¥67,084 per share, it should be possible to pay a dividend of such magnitude were one able to gain control of the company, and that is after all liabilities have first been extinguished. Following payment of this massive dividend, one would still retain the historically profitable operating business, including all related inventory, accounts receivable, machinery, land and buildings. There are even some marketable securities in other companies to be found in possession by Fujishouji, which would also remain after the huge dividend payment had been distributed. At a market capitalisation of ¥22.93 billion, only the greater of mercantile princes among us are likely to have the resources to stage a takeover attempt, so the above value realisation scenario remains quite unlikely. However, at recent prices the dividend on the security alone yields a massive 5%. Provided the dividend is maintained at this level, as it has been for the past several years, a long wait to unlock the full value held within this balance sheet need not be an unduly unpleasant experience.
As mentioned above, I have no insight to offer on the future business prospects of neither Fujishouji nor the industry it operates in. It is certainly a possibility that conditions could rapidly deteriorate, as is the case for any enterprise. However, the increase in book value over several years, the past steady payment of dividends, the case of two relatively recent minor share buybacks, and most of all, the mind blowing wall of cash held by Fujishouji would lead me to believe that the margin of safety present when acquiring an interest in the entity at current prices is as sufficient as even the most prudent of enterprising gentlemen could demand.