Takigami: Construction Firm with Improving Governance Below Liquidation Value

Brian Grosso of JBF Capital presented his in-depth investment thesis on Takigami Steel (Japan: 5918) at Best Ideas 2019.

Thesis summary:

Takigami Steel is a micro-cap construction company at a discount to liquidation value, with improving governance and capital allocation.

The core construction business is profitable and the stock trades at one-third of liquidation value. Most of the assets are non-core and invested in stocks, bonds, real estate, and cash.

In the last six years, corporate governance in Japan has improved considerably, and there are many visible improvements at Takigami since the founding family took back control of management in 2010. The company has raised the dividend and deployed cash for share repurchases, real estate investments, and a small acquisition — all at good prices.

While no liquidation or other value-unlocking event like a management buyout has been announced, the governance improvements are promising. In recent years, numerous other small Japanese companies have suddenly unlocked shareholder value with little notice. Even if one must wait eight years, value is accumulating and the expected return approximates 270%, or ~18% annually.

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About the instructor:

Brian Grosso manages a sub-account and sources outside investment managers for a family office with $400mm under management. He is a global, deep value investor and very open-minded and opportunistic in the hunt for bargains. He passed the CFA Level 2 Exam in June 2018 and plan to finish the program in 2019.