The Bull Case For Japanese Lender Takefuji (TAKAF)

Apr.20.06 | About: Takefuji Corp (TAKAF)

We bought a full position in Takefuji Corp. (OTC: TAKAF) Monday at US$62.50 per share.

Takefuji is a Japanese-based consumer finance company that’s undeniably cheap. The shares currently trade at about 1.1 times book value, just over 16 times earnings and approximately three times sales. I’m not crazy about that price-sales ratio but the current ratio and quick ratio are each roughly 7. This is a hugely overcapitalized company that should return its surplus cash to shareholders either through special dividends or share repurchases. There’s no guarantee either will happen, but with Japan’s financial landscape changing I’m hopeful.

Takefuji could also use its cash to make acquisitions -- or it could be subject to itself being a takeover target. That’s not a prediction. I simply like the idea of holding stock in such a cheap, cash-rich company. I’m betting that something will happen to unlock the value over the course of the next 3 to 5 years.

Of course, there are reasons why Takefuji’s stock is cheap. (Regular readers know that everything I buy has problems.)

For starters, consumer lending companies in Japan have had their share prices held back due to uncertainty relating to legal issues regarding maximum interest rates that can be charged. In fact, two conflicting lending laws have existed for many years on this topic, leading to a “grey zone.