As you know, I'm bullish -- and underwater -- on Takefuji Corp. (OTC:TAKAF).
Norton writes that the sector may be cheap, and also:
Those companies took up the slack when Japanese banks, stung by bad corporate loans, abandoned retail borrowers. Today, some 20 million Japanese rely on consumer-finance companies, borrowing at rates of up to 29% while the companies have built up significant databases. Lately, the government has made plans to cap the maximum rate at 20% and force companies to reimburse customers for excessive interest payments. Ayako Sato of UBS Securities notes, too, that the most creditworthy customers are migrating to other institutions. But consumer-finance companies like Takefuji, Aiful, Acom and Promise have competitive advantages. "Even if banks wanted to enter this area, they don't have the credit database," says Egor Rybakov of Tradewinds Capital in Los Angeles.
To Rybakov, these stocks are good buys. Takefuji now trades at 0.7 times book, versus three times in 1999 and between one and 1.5 since late '02. Promise sold at 2.5 times book in '99, fell to 1.5 and now trades at 0.7. Book is probably overstated, Rybakov says: "You have to assume they're forgiving principal to a certain percentage of borrowers." Nonetheless, the companies are overcapitalized. Today, equity at Takefuji is a high 54% of assets; at Promise, it's 44%; at Acom, 45%, and at Aiful, 23%, leaving plenty of room to boost returns.
Rybakov's thesis: Even at 0.7 times book, and assuming the companies set aside 30% of book for interest reimbursements and loan forgiveness, they still trade at one times book. "This is a strong value proposition," he says.
You know I agree with him, since I'm in Takefuji stock. And this is despite the fact that Bloomberg recently reported Takefuji is among the consumer lenders ready to report first-half losses, due to setting aside money for consumer fraud claims.
TAKAF.PK 1-yr chart: