Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

In mid-February 2020, upon releasing full-year earnings, <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a> announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in <a href="https://www.smartkarma.com/insights/gmo-internet-9449-buyback-bigger-than-it-looks-smaller-than-it-looks" target="_blank" data-smartkarma-citation="insights:36580" rel="noopener">GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks</a>. The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. <h2>The NEW News</h2><a href="https://ir.gmo.jp/pdf/presen/GMO_FY20_Q1_Consolidated_Results_Statement_200512.pdf" target="_blank" rel="noopener">Q1 earnings</a> were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.TODAY after the close, after having <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info20200512_01.pdf" target="_blank" rel="noopener">announced</a> the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info2020514.pdf" target="_blank" rel="noopener">announced</a> a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. It's worth looking at where we stand now.

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks. The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. The NEW NewsQ1 earnings were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.TODAY after the close, after having announced the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company announced a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. It's worth looking at where we stand now.

<a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> has written about <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a> over the years as an interesting holdco and most recently wrote about the situation as both a holdco and corporate governance situation in <a href="https://www.smartkarma.com/insights/gmo-internet-listed-holdings-preferred" target="_blank" data-smartkarma-citation="insights:29641" rel="noopener">GMO Internet: Listed Holdings Preferred</a>. Others including <a href="https://www.smartkarma.com/profiles/campbell-gunn" target="_blank" data-smartkarma-citation="accounts:2531" rel="noopener">Campbell Gunn</a> have written about it <a href="https://www.smartkarma.com/entities/gmo-internet-inc/insights?item=27803" target="_blank" rel="noopener">here</a>.
The stock has been the subject of activist interest in the past few years, and as such it has enjoyed a fair bit of press as well, though not always laudatory.
<h2>The NEW News Yesterday</h2>
The NEW News yesterday was that the company reported full-year earnings, with consolidated revenues climbing 5.9% to ¥196.2bn, OP climbing 16.0% to ¥25.3bn, and Net Income up sharply from last year's net loss to +¥8.3bn. 
The company also announced a downward-facing dividend (i.e. a slight cut in the Q4 dividend for 2019 vs 2018), and most importantly, a <a href="https://ir.gmo.jp/en/pdf/irlibrary/gmo_disclose_info20200212_3_e.pdf" target="_blank" rel="noopener">stock buyback</a>. 
It's a big one.
The company announced a buyback of up to ¥15bn or up to 9 million shares (7.95% of shares outstanding). This is an advancement on the company's Total Shareholder Returns Policy instituted in 2016, which stated that the company aimed to return 50% of parent profits to shareholders, with a dividend payout of 33% of total parent earnings, and the rest paid back in the form of share buybacks (but with flexible timing).
Given the share price of recent, assuming no change, it would be a buyback of only 6.9mm shares, which is 6.1% of shares outstanding, but it's a start.

David Blennerhassett has written about GMO Internet (9449 JP) over the years as an interesting holdco and most recently wrote about the situation as both a holdco and corporate governance situation in GMO Internet: Listed Holdings Preferred. Others including Campbell Gunn have written about it here.
The stock has been the subject of activist interest in the past few years, and as such it has enjoyed a fair bit of press as well, though not always laudatory.
The NEW News Yesterday
The NEW News yesterday was that the company reported full-year earnings, with consolidated revenues climbing 5.9% to ¥196.2bn, OP climbing 16.0% to ¥25.3bn, and Net Income up sharply from last year's net loss to +¥8.3bn. 
The company also announced a downward-facing dividend (i.e. a slight cut in the Q4 dividend for 2019 vs 2018), and most importantly, a stock buyback. 
It's a big one.
The company announced a buyback of up to ¥15bn or up to 9 million shares (7.95% of shares outstanding). This is an advancement on the company's Total Shareholder Returns Policy instituted in 2016, which stated that the company aimed to return 50% of parent profits to shareholders, with a dividend payout of 33% of total parent earnings, and the rest paid back in the form of share buybacks (but with flexible timing).
Given the share price of recent, assuming no change, it would be a buyback of only 6.9mm shares, which is 6.1% of shares outstanding, but it's a start. 

GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/170/original/2020-01-28_05-14-43.png?1580156104" class="editor-image img-responsive" data-smartkarma-image-id="115170"></figure><div class="content-caption">Source • Japan Analytics</div>TRACKING RESULTS &amp; REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the announcements released over the previous twenty-four hours and highlight 'winners' and 'losers' using our scoring methodology for both Results and Revisions. Until the number of daily announcements becomes excessive, we shall focus on companies with a market capitalisation fo over ¥50 billion.SCORING METHODOLOGY - Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period. The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.  The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score. These scores are then cap-weight aggregated into Sector and Market Composite Scores for which the seventeen-year track record is shown above.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/115/171/original/2020-01-28_05-28-10.png?1580156919" class="editor-image img-responsive" data-smartkarma-image-id="115171"></figure><div class="content-caption">Source • Japan Analytics/Cabinet Office</div>TRENDING LOWER - Although the Results Score has been moving sideways since November, the Forecast/Revision Score continues to make new ten-year lows. This downward trend is in accord with the Cabinet Office Business Conditions Leading Indicator which reached a new post-GFC low in November, before the impact of the Coronavirus.<div class="content-highlight">Note that our Scoring of both Results and Forecasts/Revisions has a strong momentum component which may lead reported earnings which tend to be a lagging indicator, hence the tighter correlations with the Leading Indicator and the market.</div>

Source • Japan AnalyticsTRACKING RESULTS &amp; REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the announcements released over the previous twenty-four hours and highlight 'winners' and 'losers' using our scoring methodology for both Results and Revisions. Until the number of daily announcements becomes excessive, we shall focus on companies with a market capitalisation fo over ¥50 billion.SCORING METHODOLOGY - Results Scores are calculated using the most recent eight quarters of company data for Revenues, Operating Income and Operating Margin and, for each, measure the rate, degree and consistency of change. The score has a maximum of +30 and a minimum of -30 for each period. The Forecast/Revision Score is based on both Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month (TTM) or previous first-half results, with annual forecasts being double-weighted. This score also has a maximum of +30 and a minimum of -30 for each period.  The combined Results &amp; Revision Score (RRS) is the average of the Results Score and the Forecasts/Revision Score. These scores are then cap-weight aggregated into Sector and Market Composite Scores for which the seventeen-year track record is shown above.Source • Japan Analytics/Cabinet OfficeTRENDING LOWER - Although the Results Score has been moving sideways since November, the Forecast/Revision Score continues to make new ten-year lows. This downward trend is in accord with the Cabinet Office Business Conditions Leading Indicator which reached a new post-GFC low in November, before the impact of the Coronavirus.Note that our Scoring of both Results and Forecasts/Revisions has a strong momentum component which may lead reported earnings which tend to be a lagging indicator, hence the tighter correlations with the Leading Indicator and the market.

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 27th January - Too Early to Call a Bottom

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/817/original/2019-02-14_15-52-58.png?1550127199" class="editor-image img-responsive" data-smartkarma-image-id="78817"></figure><div class="content-caption">Source: Japan Analytics</div><a href="https://www.smartkarma.com/entities/13631" target="_blank" data-smartkarma-citation="entities:13631:1">GMO internet (9449 JP)</a> released 2018 full-year results in 12th February. 2018 was a turbulent year for the company as it 'surfed' the cryptocurrency wave. The subsequent downfall was swift and brutal. However, the company deserves some plaudits for cutting its (substantial) losses and attempting to move on (albeit somewhat half-heartedly). Unfortunately, GMO-i has 'form' in writing off large losses as shown above.  The positive consequence of this saga is a renewed commitment to return value to shareholders with a stated aim of returning 50% of profits. Two-third of that goal is to be met by quarterly dividends, with the balance allocated to share repurchases in the following year.  Having royally 'screwed up' with 'cryptocurrencies', and trying the patience of remaining shareholders yet again, this policy is to be commended, particularly if more attention is paid to generating the wherewithal to meet the 50% without raiding the listed subsidiaries' 'piggy bank'.  Apart from the excitement that this move has generated and the year-long support this buying programme will provide to the share price, our two valuation models, find little in the way of further upside potential. We remain sceptical of investing in GMO-i over the long-term and prefer <a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">GMO Payment Gateway (3769 JP)</a> - the best business in the GMO-i 'stable' - but consider GMO-PG's stock overvalued at 57x EV/OP.

Source: Japan AnalyticsGMO internet (9449 JP) released 2018 full-year results in 12th February. 2018 was a turbulent year for the company as it 'surfed' the cryptocurrency wave. The subsequent downfall was swift and brutal. However, the company deserves some plaudits for cutting its (substantial) losses and attempting to move on (albeit somewhat half-heartedly). Unfortunately, GMO-i has 'form' in writing off large losses as shown above.  The positive consequence of this saga is a renewed commitment to return value to shareholders with a stated aim of returning 50% of profits. Two-third of that goal is to be met by quarterly dividends, with the balance allocated to share repurchases in the following year.  Having royally 'screwed up' with 'cryptocurrencies', and trying the patience of remaining shareholders yet again, this policy is to be commended, particularly if more attention is paid to generating the wherewithal to meet the 50% without raiding the listed subsidiaries' 'piggy bank'.  Apart from the excitement that this move has generated and the year-long support this buying programme will provide to the share price, our two valuation models, find little in the way of further upside potential. We remain sceptical of investing in GMO-i over the long-term and prefer GMO Payment Gateway (3769 JP) - the best business in the GMO-i 'stable' - but consider GMO-PG's stock overvalued at 57x EV/OP.

GMO.internet FY2018 Results - The Shareholder's [Re]Turn

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/074/071/original/2018-12-28_11-57-31.png?1545965862" class="editor-image img-responsive" data-smartkarma-image-id="74071"></figure>
Source: Japan Analytics
</div>
THE <a href="https://www.smartkarma.com/entities/13631" target="_blank" data-smartkarma-citation="entities:13631:1">GMO INTERNET (9449 JP)</a> STORY - GMO internet (GMO-i) has attracted much attention in the last eighteen months from an unusual trinity of value, activist and ‘cryptocurrency’ equity investors.
<ul class="">
<li>
VALUE- Many traditional, but mostly foreign, value investors have seen the persistent negative difference between GMO-i’s market capitalisation and the value of the company’s holdings in its eight listed consolidated subsidiaries as an opportunity to invest in GMO-i with a considerable ‘margin of safety’.</li>
<li>
ACTIVIST - Since July 2017, the activist investor, Oasis, has waged a so-far-unsuccessful campaign with the aim of improving GMO’s corporate governance, removing takeover defences, addressing a 'secularly undervalued stock price we are not able to tolerate' (sic), and redefining the role and influence of the company’s Chairman, President, Representative Director and largest shareholder, Masatoshi Kumagai.</li>
<li>'CRYPTO!' - In December 2017, GMO-i committed to spending more than ¥35b or 10% of non-current assets. The aim was threefold: to set up a bitcoin ‘mining’ headquarters in Switzerland (with the ‘mining’ operations being carried out at an undisclosed location in Scandinavia), to develop proprietary state-of-the-art 7nm-node 'mining chips', and, in due course, to sell GMO-branded and developed ‘mining’ machines. The move was hailed in the ‘crypto’ fraternity as GMO-i became the largest non-Chinese and the first well-established Internet conglomerate to make a major investment in ‘cryptocurrency’ infrastructure.</li>
</ul>
OUTSTANDING - Following the December 2017 announcement, trading volumes spiked into ‘Overtraded’ territory - as measured by our Volume Score. Many investors saw GMO-i shares as a safer way of gaining exposure to 'cryptocurrencies', even as the price of bitcoin began to subside. By early June 2018, GMO-i’s shares had reached a closing price of ¥3,020: up 157% from the low of the prior year and outperforming TOPIX by 135%. Whatever the primary driver of this outstanding performance, each of our trio of investor groups no doubt felt vindicated in their approach to the stock.
CRYPTO CLOSURE - On December 25th 2018, GMO-i’s shares reached a new 52-week low of ¥1,325, a decline of 56% from the June high. Year to date, GMO-i shares have now declined by 31%, underperforming TOPIX by nine percentage points. On the same day, GMO-i <a href="https://ir.gmo.jp/en/pdf/irlibrary/gmo_disclose_info20181225_e.pdf" target="_blank">announced</a> that the company would post an extraordinary ¥35.5b loss for the fourth quarter, incurring an impairment loss of ¥11.5b in relation to the closure of the Swiss ‘mining’ headquarters and a loss of ¥24b to cover the closure of the ‘mining chip' and 'mining machine' development, manufacturing and sales businesses. GMO-i will continue to ‘mine’ bitcoin from its Tokyo headquarters and intends to relocate the 'mining' centre from Scandinavia to (sic) 'a region that will allow us to secure cleaner and less expensive power supply, but we have not yet decided the details’. Unlisted subsidiary GMO Coin's 'cryptocurrency' exchange will also continue to operate, and the previously-announced plans to launch a ¥-based ‘stablecoin’ in 2019 will proceed. In the two trading days following this announcement, the shares have recovered 13% to ¥1,505. 
RAIDING THE LISTCO PIGGY BANK - As we shall relate, this is the second time since listing that GMO-i has written off a significant new business venture which the company had commenced only a short time before. In both cases, the company was forced to sell stakes in its listed consolidated subsidiaries to offset the resulting losses. On this occasion, the sale of shares in <a href="https://www.smartkarma.com/entities/22762" target="_blank" data-smartkarma-citation="entities:22762:1">GMO Financial (7177 JP)</a> (GMO-F) on September 25 2018, and <a href="https://www.smartkarma.com/entities/1492" target="_blank" data-smartkarma-citation="entities:1492:1">GMO Payment Gateway (3769 JP)</a> (GMO-PG) on December 17 2018, raised a combined ¥55.6b and, after the deduction of the yet-to-be-determined tax on the realised gains, should more than offset the ‘crypto’ losses. <a href="https://ir.gmo.jp/en/pdf/irlibrary/gmo_disclose_info20181225_2e.pdf" target="_blank">According </a>to CFO Yasuda, any surplus from this exercise will be used to pay down debt. Also discussed below and in keeping with this GMO-i ‘MO’, in 2015, the company twice sold shares in its listed subsidiaries to ‘smooth out' less-than-desirable operating results.
<div class="content-highlight">
In the DETAIL section below we will cover the following topics:-
I: THE GMO-i TRACK RECORD - TOP-DOWN v. BOTTOM UP
<ul>
<li>BOTTOM LINE No. 1: NET INCOME</li>
<li>BOTTOM LINE No.2 - COMPREHENSIVE INCOME</li>
</ul>
II: THE GMO-i BUSINESS MODEL - THROWING JELLY AT THE WALL
III: THE GMO-i BALANCE SHEET - NOT SO HAPPY RETURNS
IV: THE GMO-i CASH FLOW - DEBT-FUNDED CASH PILE
V: THE GMO-i VALUATION - TWO METHODS &gt; SAME RESULT
<ul>
<li>VALUATION METHOD No.1 - THE 'LISTCO DISCOUNT'</li>
<li>VALUATION METHOD No.2 - RESIDUAL INCOME</li>
</ul>
</div>
<div class="content-highlight">
CONCLUSION - For those unable or unwilling to read further, we conclude that GMO-i 'rump' is a grossly-overrated business. Despite having started and spun off several valuable GMO Group entities, CEO Kumagai bears responsibility for two decades of serial and very poorly-timed ‘mal-investments’. As a result, the stock market has, except for the ‘cryptocurrency’-induced frenzy of the first six months of 2018, historically not accorded GMO-i any premium for future growth, and has correctly looked beyond the ‘siren song’ of the ‘HoldCo discount’. According to the two valuation methodologies described below, the company is, however, fairly valued at the current share price of ¥1,460. Investors looking for a return to the market-implied 3% perpetual growth rate of mid–2018 are likely to be as disappointed as those wishing for BTC to triple from here.
</div>



Source: Japan Analytics

THE GMO INTERNET (9449 JP) STORY - GMO internet (GMO-i) has attracted much attention in the last eighteen months from an unusual trinity of value, activist and ‘cryptocurrency’ equity investors.


VALUE- Many traditional, but mostly foreign, value investors have seen the persistent negative difference between GMO-i’s market capitalisation and the value of the company’s holdings in its eight listed consolidated subsidiaries as an opportunity to invest in GMO-i with a considerable ‘margin of safety’.

ACTIVIST - Since July 2017, the activist investor, Oasis, has waged a so-far-unsuccessful campaign with the aim of improving GMO’s corporate governance, removing takeover defences, addressing a 'secularly undervalued stock price we are not able to tolerate' (sic), and redefining the role and influence of the company’s Chairman, President, Representative Director and largest shareholder, Masatoshi Kumagai.
'CRYPTO!' - In December 2017, GMO-i committed to spending more than ¥35b or 10% of non-current assets. The aim was threefold: to set up a bitcoin ‘mining’ headquarters in Switzerland (with the ‘mining’ operations being carried out at an undisclosed location in Scandinavia), to develop proprietary state-of-the-art 7nm-node 'mining chips', and, in due course, to sell GMO-branded and developed ‘mining’ machines. The move was hailed in the ‘crypto’ fraternity as GMO-i became the largest non-Chinese and the first well-established Internet conglomerate to make a major investment in ‘cryptocurrency’ infrastructure.

OUTSTANDING - Following the December 2017 announcement, trading volumes spiked into ‘Overtraded’ territory - as measured by our Volume Score. Many investors saw GMO-i shares as a safer way of gaining exposure to 'cryptocurrencies', even as the price of bitcoin began to subside. By early June 2018, GMO-i’s shares had reached a closing price of ¥3,020: up 157% from the low of the prior year and outperforming TOPIX by 135%. Whatever the primary driver of this outstanding performance, each of our trio of investor groups no doubt felt vindicated in their approach to the stock.
CRYPTO CLOSURE - On December 25th 2018, GMO-i’s shares reached a new 52-week low of ¥1,325, a decline of 56% from the June high. Year to date, GMO-i shares have now declined by 31%, underperforming TOPIX by nine percentage points. On the same day, GMO-i announced that the company would post an extraordinary ¥35.5b loss for the fourth quarter, incurring an impairment loss of ¥11.5b in relation to the closure of the Swiss ‘mining’ headquarters and a loss of ¥24b to cover the closure of the ‘mining chip' and 'mining machine' development, manufacturing and sales businesses. GMO-i will continue to ‘mine’ bitcoin from its Tokyo headquarters and intends to relocate the 'mining' centre from Scandinavia to (sic) 'a region that will allow us to secure cleaner and less expensive power supply, but we have not yet decided the details’. Unlisted subsidiary GMO Coin's 'cryptocurrency' exchange will also continue to operate, and the previously-announced plans to launch a ¥-based ‘stablecoin’ in 2019 will proceed. In the two trading days following this announcement, the shares have recovered 13% to ¥1,505. 
RAIDING THE LISTCO PIGGY BANK - As we shall relate, this is the second time since listing that GMO-i has written off a significant new business venture which the company had commenced only a short time before. In both cases, the company was forced to sell stakes in its listed consolidated subsidiaries to offset the resulting losses. On this occasion, the sale of shares in GMO Financial (7177 JP) (GMO-F) on September 25 2018, and GMO Payment Gateway (3769 JP) (GMO-PG) on December 17 2018, raised a combined ¥55.6b and, after the deduction of the yet-to-be-determined tax on the realised gains, should more than offset the ‘crypto’ losses. According to CFO Yasuda, any surplus from this exercise will be used to pay down debt. Also discussed below and in keeping with this GMO-i ‘MO’, in 2015, the company twice sold shares in its listed subsidiaries to ‘smooth out' less-than-desirable operating results.

In the DETAIL section below we will cover the following topics:-
I: THE GMO-i TRACK RECORD - TOP-DOWN v. BOTTOM UP

BOTTOM LINE No. 1: NET INCOME
BOTTOM LINE No.2 - COMPREHENSIVE INCOME

II: THE GMO-i BUSINESS MODEL - THROWING JELLY AT THE WALL
III: THE GMO-i BALANCE SHEET - NOT SO HAPPY RETURNS
IV: THE GMO-i CASH FLOW - DEBT-FUNDED CASH PILE
V: THE GMO-i VALUATION - TWO METHODS &gt; SAME RESULT

VALUATION METHOD No.1 - THE 'LISTCO DISCOUNT'
VALUATION METHOD No.2 - RESIDUAL INCOME



CONCLUSION - For those unable or unwilling to read further, we conclude that GMO-i 'rump' is a grossly-overrated business. Despite having started and spun off several valuable GMO Group entities, CEO Kumagai bears responsibility for two decades of serial and very poorly-timed ‘mal-investments’. As a result, the stock market has, except for the ‘cryptocurrency’-induced frenzy of the first six months of 2018, historically not accorded GMO-i any premium for future growth, and has correctly looked beyond the ‘siren song’ of the ‘HoldCo discount’. According to the two valuation methodologies described below, the company is, however, fairly valued at the current share price of ¥1,460. Investors looking for a return to the market-implied 3% perpetual growth rate of mid–2018 are likely to be as disappointed as those wishing for BTC to triple from here.


GMO Internet (9447 JP) - Grossly or Modestly Overrated?

Japan

GMO Financial Holdings, Inc. offers wealth management services. The Company provides financial trading, business renewal, investment information offering, and other services. GMO Financial Holdings provides its services throughout Japan.

GMO Financial Holdings (7177 JP)

GMO Buyback - Approaching The End But...

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some...

Travis Lundy

GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks

David Blennerhassett has written about GMO Internet (9449 JP) over the years as an interesting holdco and most recently wrote about the situation...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 27th January - Too Early to Call a Bottom

TRACKING RESULTS & REVISIONS - As the 'season' for quarterly results picks up again, this series of daily insights will summarise the...

Campbell Gunn

GMO.internet FY2018 Results - The Shareholder's [Re]Turn

GMO internet (9449 JP) released 2018 full-year results in 12th February. 2018 was a turbulent year for the company as it 'surfed' the...

Campbell Gunn

GMO Internet (9447 JP) - Grossly or Modestly Overrated?

THE GMO INTERNET (9449 JP) STORY - GMO internet (GMO-i) has attracted much attention in the last eighteen months from an unusual trinity of value,...

Campbell Gunn