Nansin (TYO:7399) has been part of my Japanese basket of stocks for a few years. I’ve sold my shares recently. Unfortunately this wasn’t due to a rising market valuation. Nansin is as cheap as ever and looks like a nice bargain at first glance:
Share price: ¥543
Shares outstanding: 6.77m
Market cap: ¥3.7bn
Cash & deposits: ¥3.1bn
Price/NCAV (incl. long-term investments): 0.70x
Nansin’s revenue and profits have been pretty stable. The company also pays a small dividend. They are active in a very boring industry: the manufacture and sale of casters and dollies. It seems like a great candidate for a basket of net-nets or book value bargains.
I do monitor my Japanese holdings and try to review some company announcements from time to time, using Google Translate to try to make sense of things. A couple of Nansin’s filings from May, 2019 caught my eye.
Large share buyback
The first press release from May 15th announced the completion of a share buyback. The company bought back 900k shares, or 11.7% of the outstanding shares. The purchase price was ¥550 per share for a total of ¥495m. This is a huge deal for this company, because KaijiNet didn’t show any meaningful share repurchases for this company since 2008.
Large insider sale
The second filing, also posted on May 15th, showed a change in ownership. It looks like a member of the Saito family, which holds a number of managerial positions at Nansin, has sold 450k shares and decreased his ownership from 12.6% to 7.6%. Based on share ownership data from Marketscreener.com I think the person selling was Nobufusa Saito, the 75 year old former Chairman of the company.
So it appears that an insider who has been involved with Nansin for at least a few decades has sold a big chunk of his stock to the company at an extremely low price.
What does this mean for outside shareholders?
I think this is bad news. If an insider is willing to sell his stock at this price, I don’t think shareholders can expect to receive a much more reasonable price for their shares either. You hear regularly in financial media that Japanese management doesn’t focus much on shareholder value, but much more on things like employee well-being and extreme financial strength of the company. I think this transaction is just an example of how far this can go. Insiders themselves will sometimes sell their stock to the company at ridiculously low prices.
I think it is better to avoid the companies that are showing the most extreme signs of shareholder neglect. This transaction makes me pessimistic about any positive scenario developing at Nansin. Perhaps you could argue that this insider sale makes it easier for an activist to get a foot in the door, but I think that if management believed that risk existed, this insider sale wouldn’t have happened in the first place. I’m also not a big believer in activism in Japan in general, especially not in illiquid micro-caps that are not of interest to large investment funds.
This insider sale also makes it very unlikely that management is willing to think about a sale of the company in the coming years, because the former chairman could have made a lot more money by holding on to his shares. A merger is always an unlikely scenario, but mergers do happen in Japan. An example on this blog was Solcom in 2018. So a much decreased chance of anything like that happening should be factored in now.
All in all, I really didn’t like this development and decided to sell my shares, even though, when just looking at the numbers, the valuation looks very compelling.
Disclosure: no position in Nansin (TYO:7399)