A few hours after this author forecast that Nintendo would release an upward revision of its fiscal 2007 results it did exactly that. Nintendo’s April 5, 2007 announcement that it exceeded its own January 10, 2007 upward revisions was well received by shareholders.
The price of its shares rose 900 yen on the Tokyo Stock Exchange immediately following the Thursday mid-day press release and closed the day up 550 or 1.62%. The next day, Friday, April 6th, Nintendo rose an additional 800 yen or 2.33% to close at 35,100 yen, which put the intrinsic value of the NTDOY shares at $36.95.
The official April 5th release stated that the company intends to accelerate its financial closing process so that it will release its March 31, 2007 fiscal year results on April 26, 2007. That is a full month earlier than comparable releases in 2005 and 2006 and indicative of a company management that is anxious to report its good news Nintendo whetted the appetite of shareholders when it stated that it exceeded its forecasts of sales, consolidated operating income, consolidated income before income taxes and extraordinary items, and consolidated net income. In particular it noted that sales were 66 billion yen greater and that foreign exchange would yield about a 30 billion yen boost. Nintendo also stated that it would likely pay its year-end dividend based on its 50% of net income.
These statements strongly suggest that Nintendo will report fiscal 2007 net income of about 159 billion yen or 1,240 yen per share up 62.6% from 2006. Furthermore, it will likely pay a year-end dividend of 550 yen, which is in addition to its regular 70 yen, interim dividend. Its expected total fiscal 2007 dividends of 620 yen would represent a 59% increase above its fiscal 2006 dividends of 390 yen.
An examination of quarterly results shows that Nintendo’s sales are in a dramatic uptrend. Its sales for the quarters ended June, September, and December were up 85%, 59%, and 75%, respectively over prior year comparable quarterly sales. Even more remarkable is the fact that its sales for the quarter ended March 2007 at 253 billion yen are expected to be about 160% above the comparable March 2006 quarter.
On April 5, 2007 Nintendo was selling at a price earnings (P/E) ratio of 27.7 based on estimated fiscal 2007 earnings and it provided a healthy 1.8% dividend yield. Nintendo’s PE multiple is much too low considering its sales and income growth rates, its abundant cash position ($6.7 billion), its debt-free balance sheet, and comparable PE multiples of other publicly held gaming companies. For example, the P/E multiple of Gamestop is 33, THQ is 45, Activision is 72, and Electronic Arts is 190. By the way, none of these companies pay a dividend.
Nintendo shareholders should expect generous total returns going forward from a combination of dramatic growth in earnings per share, further dividend increases , and a higher PE multiple. Furthermore, favorable financial coverage of Nintendo will surely call it to the attention of the investing public who remain largely unaware of how to buy stock in Nintendo.
Disclosure: Author is long NTDOY.PK