Japan's most mispriced compounder

Recurring revenue collected years upfront, millions of users who have never heard of it, and a growth story few are underwriting.

There’s a company out in Japan that I’ve been sitting on for a while. It has the shape of a thing I like: a sort of dull, cash-generative business with a defensible position, trading at a great price, divided into two segments where one is growing much faster than the other behind the curtain. The company has grown every single year since its founding, and it’s run by a founder who owns a lot of the stock and originally built it to solve a personal problem.

Better yet, it’s tiny, with revenues of <$20mn. And it operates in a niche so specific and local that even investors who follow the Japanese market walk right past it.

The company’s name appears nowhere in the experience of its end users. And yet, it has ended up embedded in the daily lives of tens of millions of Japanese people through a distribution channel it didn’t build and doesn’t pay for. And it addresses a social problem the government has decided it needs to fix.

But the most interesting bit is the financials. Its cash generation runs at roughly double reported earnings, with the balance sheet loaded with cash at a third of the market cap. That mismatch between valuation multiples (earnings vs cash) might be the best explanation of what leads to this opportunity.

Let’s dig in...