Henrik Andersson presented his in-depth investment thesis on Mandom Corporation (Tokyo: 4917) at Wide-Moat Investing Summit 2016.
Mandom Corporation is one of Japan’s most successful branded consumer goods companies, with a particularly strong franchise in its Gatsby brand. It manufactures and markets a variety of cosmetics products for men and women, with a particular focus on hair care and facial. The company derives about 60% of sales from the Japanese markets, 20% from Indonesia and about 20% from other-Asia. Whereas its market position in Indonesia is extremely strong thanks to a patient roll-out of a full-scale distribution apparatus since its entry in the early 1970s, Mandom’s market share in the other Asian countries is more nascent. We believe the company follow the basic “playbook” in how to run a long-term oriented consumer brands company; constant brand innovation, continuous reinvestment in order to build brand recognition, focus on distribution and feet-on-the street to serve beauty salons and drug stores, and not being too aggressive on yearly price-hikes. Its market shares ranges from 70% (Indonesian hair care) to <10% (women cosmetics in other-Asia). We are of the strong opinion that Mandom really do invest for the future, without just paying lip-service. The owner-operator aspect is also vitally important and goes hand-in-hand with the previous point. The current CEO Motonobu Nishimura and his family owns >10% of the company, and he was instrumental in building up Mandom’s Indonesian position. Mandom has grown sales by 5% and free cash flow by 13% in the last five years, despite heavy investments and currency headwinds from Indonesia. Despite some “Japanese” tendencies of inefficiencies (not the least the net cash position of 20% of market cap), we believe 5% organic sales growth accompanied by >10% FCF CAGR is a conservative base to start from.
About the instructor:
Henrik Andersson has worked within a framework of investing in quality franchises in a concentrated portfolio setting since the early 2000s. After five years as an assistant fund manager and analyst at Handelsbanken Asset Management, in 2003 he launched a discretionary portfolio named European Quality with 15 holdings, inspired by Peter Cundill’s approach of “never shoot into the broom”. That later branched out to a family of funds named the Selective Funds. In 2011 he joined Didner & Gerge, an employee-owned asset management boutique, to launch a Global Equity Fund together with a colleague. D&G Global is now applying the same principles they have used for over a decade in trying to identify sustainably great companies with an appealing valuation starting point. Over the years, an increased emphasis has been put on corporate leadership with a clear preference for owner-operated companies with a history of outstanding operations.
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