Hennessy Japan Fund passes 1 for
Hennessy Japan Fund (Trades, Portfolio) disclosed its transactions for the third quarter earlier this week.
Managed by Masakazu Takeda and Yu Shimizu, the fund, part of California-based Hennessy Advisors, invests in a concentrated number of high-quality Japanese companies. Portfolio managers look for value opportunities among companies that have good management, a strong balance sheet with little to no debt, a sustainable competitive advantage, high return on equity, strong cash flow generation and growth. above average profits.
In a recent market commentary, Takeda and Tadahiro Fujimura, who manages the
Hennessy Japan Small Cap Fund (Trades, Portfolio), discussed the heightened investor sentiment for Japanese equities following Berkshire Hathaway (BRK.A, Financial) (BRK.B) 5% investment in several large “sogo shosha” conglomerates. They said that companies complete
Warren Buffett (Trades, Portfolio), but noted that he saw opportunities as stocks trade at a discount to their fair value “due to misperceptions by non-Japanese investors.”
Keeping in mind its investment criteria, the fund established only one new position during the quarter, which was in Olympus Corp. (IS: 7733, Financial). It also sold its subsidiary Ryohin Keikaku Co. Ltd. (EST: 7453, Financial) and held back a host of other investments, including Kubota Corp. (EST: 6326, financial), Mitsubishi Corp. (IS: 8058, financial) and Shimano Inc. (EST: 7309, Financial).
The fund invested in 322,700 shares of Olympus, allocating 0.95% of the equity portfolio to the holding company. The stock traded at an average price of 1,884.39 yen ($ 17.83) per share during the quarter.
The Japanese manufacturer of optical and reprographic products has a market capitalization of 2.81 trillion yen; its shares closed at 2,182 yen on Wednesday with a price-to-earnings ratio of 69.69, a price-to-book ratio of 7.77 and a price-to-sell ratio of 3.72.
The Peter Lynch chart shows that the stock is trading above its fair value, suggesting that it is overvalued. GuruFocus’ valuation ranking of 2 out of 10 also supports this valuation as the stock price and price-to-sell ratio are near 10-year highs.
Olympus’ financial strength and profitability were both rated 6 out of 10 by GuruFocus. In addition to having adequate interest coverage, the Altman Z-Score high of 3.7 indicates that the company is in good standing.
Although the operating margin is declining, the company’s returns are more than half that of its competitors. Olympus is also backed by a moderate Piotroski F-Score of 6, which suggests trading conditions are stable and a predictability rating of one in five stars. According to GuruFocus, companies with this rank are reporting an average of 1.1% per year over a 10-year period.
Steven romick (Trades, Portfolio) is the company’s largest guru shareholder with a 0.45% stake. Hennessy has a much smaller position with 0.03% of the shares outstanding.
The Japanese fund sold its remaining 284,100 shares of Ryohin Keikaku, which had an impact of -0.58% on the equity portfolio. The shares traded at an average price of 1,477.69 yen each during the quarter.
GuruFocus estimates that the fund gained 44.83% on the investment.
Also known as Muji, the company, which sells household and consumer goods, has a market capitalization of 457.65 billion yen; its shares closed at 1,740 yen on Wednesday with a price-to-earnings ratio of 36.56, a price-to-book ratio of 2.36 and a price-to-sell ratio of 1.13.
According to the chart Peter Lynch, the stock is overvalued.
GuruFocus rated Ryohin Keikaku’s financial strength at 7 out of 10, thanks to a comfortable level of interest coverage as well as a strong Altman Z-Score of 4.46. Return on invested capital, however, is eclipsed by the weighted average cost of capital, indicating that the company is not making a profit on its projects and, therefore, is destroying value.
The profitability of the company is faring a little better, scoring a 9 out of 10. Although the operating margin is declining, it, along with the strong returns of the company, exceeds more than half. of its peers in the sector. Ryohin Keikaku also has a low Piotroski F-Score of 3, indicating that trading conditions are in bad shape. Due to the drop in earnings per share over the past year, the 4.5-star predictability rating is under scrutiny. GuruFocus claims that companies with this rank typically report an average of 10.6% per year.
No guru currently has positions in the stock.
With an impact of -1.37% on the equity portfolio, Hennessy reduced its stake in Kubota by 34.45% by selling 648,700 shares. The stock traded at an average price per share of 1,527.69 yen during the quarter.
The fund now holds 1.23 million shares, which represents 2.88% of the equity portfolio. GuruFocus data shows it has lost around 4.58% on investment since the first quarter of 2014.
The company, which manufactures tractors and other heavy equipment, has a market capitalization of 2.27 trillion yen; its shares closed at 1,877.5 yen on Wednesday with a price-to-earnings ratio of 17.97, a price-to-book ratio of 1.58 and a price-to-sell ratio of 1.25.
From Peter Lynch’s chart, the stock appears to be overvalued. GuruFocus’s valuation rank of 2 out of 10 matches this assessment as the stock price and price-to-sell ratio approach two-year highs.
Kubota’s financial strength has been rated 6 out of 10 by GuruFocus. Although the company has issued around 187.7 billion yen of new long-term debt over the past three years, it is still at a manageable level due to comfortable interest coverage. The Altman Z-Score of 2.52, however, indicates that it is under some pressure as assets are accumulating at a faster rate than income is increasing.
The company’s profitability was rated 7 out of 10. Although the operating margin is declining, it is supported by returns above half of its competitors and a moderate Piotroski F-Score of 5. In Due to the decline in revenue per share over the past year, the three-star predictability ranking is on hold. GuruFocus data shows that companies with this ranking earn an average return of 8.2% per year.
Among the gurus invested in Kubota, the
T. Rowe Price Japan Fund (Trades, Portfolio) holds the largest stake with 0.13% of the outstanding shares. Hennessy owns 0.10%.
With an impact of -0.93% on the equity portfolio, the fund reduced its Mitsubishi position by 22.64%, selling 257,300 shares. During the quarter, the stock traded at an average price of 2,338.51 yen per share.
It now holds 879,400 shares, or 2.91% of the equity portfolio. GuruFocus estimates that Hennessy has lost 5.65% on the investment so far.
The industrial conglomerate, which is involved in a large number of markets ranging from business services and infrastructure to energy and chemicals, has a market capitalization of 3.72 trillion yen; its shares closed at 2,512.5 yen on Wednesday with a price-to-earnings ratio of 9.3, a price-to-pound ratio of 0.71 and a price-to-sell ratio of 0.27.
The Peter Lynch chart suggests that the stock is undervalued.
GuruFocus rated Mitsubishi’s financial strength at 5 out of 10. Due to the issuance of approximately 578.6 billion yen of new long-term debt in recent years, the company has low interest coverage. Additionally, the Altman Z-Score of 1.51 warns that the company may be in danger of bankruptcy as income per share has declined over the past year. WACC also exceeds ROIC, indicating that it generates low returns on its investments.
The company’s profitability was rated 7 out of 10, thanks to expanding operating margin, strong returns that surpass more than half of its industry peers and a moderate Piotroski F-Score of 6.
The fund owns 0.06% of the outstanding shares of Mitsubishi.
Hennessy reduced Shimano’s stake by 12.4%, selling 27,500 shares. The operation had an impact of -0.69% on the equity portfolio. During the quarter, the shares traded at an average price of 20,263.8 yen each.
The fund now holds 194,200 shares, which occupy 6.92% of the equity portfolio. GuruFocus estimates that Hennessy gained 32.4% on the investment.
The company, which manufactures cycling components, fishing gear and rowing equipment, has a market capitalization of 1.92 trillion yen; its shares closed at 20,720 yen on Wednesday with a price-to-earnings ratio of 32.96, a price-to-pound ratio of 3.85 and a price-to-sell ratio of 5.63.
According to the chart Peter Lynch, the stock is overvalued. The share price and price-to-sell ratio are also close to 10-year highs.
Shimano’s financial strength received a perfect score of 10 out of 10 by GuruFocus thanks to comfortable interest coverage and a solid Altman Z-Score of 28.1.
The company’s profitability also performed well, scoring an 8 out of 10. Although the operating margin is declining, it still outperforms its competitors. Shimano also has strong returns which have beaten the majority of other players in the industry as well as a moderate Piotroski F-Score of 6. Despite recording a decline in revenue per share over the past year. year, the company also has a one-star predictability. .
The Japan Fund owns 0.21% of the outstanding shares of Shimano.
Additional transactions and portfolio performance
Among the many other positions that were reduced by the fund during the quarter was Unicharm Corp. (TSE: 8113), Daikin Industries Ltd. (TSE: 6367), Rohto Pharmaceutical Co. Ltd. (TSE: 4527), Recruit Holdings Co. Ltd. (TSE: 6098) and SoftBank Group Corp. (TSE: 9984).
The Japan Fund’s $ 609 million equity portfolio, consisting of 23 stocks, is primarily invested in the industrials sector with a weighting of 29.04%. Defensive consumption and cyclical consumption areas represent 18.31% and 18.08% of the portfolio.
According to Hennessy’s website, the fund returned 18.04% in 2019, slightly underperforming the return of the Russell / Nomura Total Market index by 20.07% and the return of the price index. Tokyo shares by 19.67%.
Disclosure: No position.
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