Value Investing in my Circle of Competence, Hurdle Rate

Hurdle Rate

Value Investing in my Circle of Competence

The name “Hurdle rate” was inspired by none other than Mark Leonard of Constellation Software, and their prolific use of a fixed hurdle (discount) rate for their investments. Had you invested into Constellation Software at the time of their IPO as an Australian Investor you would of seen your investment multiply by >100x or (>35% CAGR), an enviable record (Updated March 2023).

Equity Bottom-Up

<ul><li>Miroku Jyoho Service (TSE:9928) , which offers on-premises, hybrid (IaaS) and cloud accounting software to Japanese enterprises of various sizes.</li><li>Our purchase is centred around the business achieving further transition to the cloud, allowing for substantial margin improvement through the accumulation of high gross margin SaaS revenue.</li><li>This transition has impacted firm profitability in the short term due to the shift in revenue recognition as quoted below by the company</li></ul>

Miroku Jyoho Service (TSE:9928) , which offers on-premises, hybrid (IaaS) and cloud accounting software to Japanese enterprises of various sizes.Our purchase is centred around the business achieving further transition to the cloud, allowing for substantial margin improvement through the accumulation of high gross margin SaaS revenue.This transition has impacted firm profitability in the short term due to the shift in revenue recognition as quoted below by the company

'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. 

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/809/original/2019-08-04_13-24-01.png?1564892655" class="editor-image img-responsive" data-smartkarma-image-id="94809"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>SOUTHBOUND</strong> - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/810/original/2019-08-04_13-32-15.png?1564893149" class="editor-image img-responsive" data-smartkarma-image-id="94810"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/812/original/2019-08-04_13-39-03.png?1564893556" class="editor-image img-responsive" data-smartkarma-image-id="94812"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>BREAKDOWN</strong> - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/094/816/original/2019-08-04_13-44-46.png?1564893904" class="editor-image img-responsive" data-smartkarma-image-id="94816"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>YEN DRIVER</strong> - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1" rel="noopener">JUSDJPY CURNCY</a> over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    </p><div class="content-highlight"><p>In the<strong> DETAIL</strong> section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.</p></div><center></center><div class="content-caption">The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell</div>

Source: Japan AnalyticsSOUTHBOUND - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings is still heading lower. Since July 22nd, 1,216 or 32% of companies have reported results and 292 forecast revisions have been announced. The Japan Analytics Results &amp; Revision Score reached a new 28-month low on Friday of 1.43, a decline of 78% from the current cycle peak of 6.50 on 16th November 2017. The correlation between the Score and the Market Capitalisation of listed companies excluding REITs is 0.77, and the Score is more of a leading or co-incident than lagging indicator.Source: Japan AnalyticsBREAKDOWN - The Results &amp; Revision Score is a weighted sum of three components, the Results Score, the Annual Forecast/Revision Score and the Interim Forecast/Revision Score, with the last of these only being applicable for nine months of each year. The two Forecast/Revision Scores are, as would be expected., leading indicators for the Results Score. The current quarter's Results Scor decline already exceeds the previous quarter's more-benign decline which also saw an increase in the Annual Forecast/Revision Score as the majority of companies 'rolled' their forecast ahead by one year. In contrast, the forecasts for the Interim period which for most companies ends next month were the most pessimistic since April 2016 and the mostly first-quarter results are confirming the early caution. In addition, full-year forecasts are also being downgraded and are at the lowest level for three months.Source: Japan AnalyticsYEN DRIVER - The key driver of the Results &amp; Revision Score has been the year-on-year change in the US dollar/Yen exchange rate lagged by six months. The major turning points in JUSDJPY CURNCY over the last twelve years highlighted above line up well with changes in the direction of earnings momentum as represented by the Results &amp; Revision Score. With the Yen having reverted to a period of strengthening in recent weeks, the trend in the Score will be downwards over the next six months, which will be reflected in due course by the market.    In the DETAIL section below, we update our Market Composite Results Timeline, Sector and Peer Group Results &amp; Revision Scores, Sector Performance and Valuation and look at the best and worst large-cap individual company results over the last two weeks. In the meantime, we lighten the mood with a classic Allman Brother track featuring the incomparable Dicky Betts.The Allman Brothers Band - Southbound - 1/16/1982 - University Of Florida Bandshell

🇯🇵 Japan • Summer Results & Revisions First Cut - Southbound

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Stoxx Europe Small 200 Price Eur / Technical Analysis

<p>With further consolidation likely for the broad indexes, we want to stick with areas of the market that have shown an ability to outperform despite the broader consolidation. For that we are returning to Technology and Services. Roughly half of today’s individual stock recommendations are domiciled in Japan, while the remainder hail from India and Russia.</p>

With further consolidation likely for the broad indexes, we want to stick with areas of the market that have shown an ability to outperform despite the broader consolidation. For that we are returning to Technology and Services. Roughly half of today’s individual stock recommendations are domiciled in Japan, while the remainder hail from India and Russia.

Global Equity Strategy U.S. Fed Cut, Now What?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

<p>On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) <a href="https://www.smartkarma.com/entities/12653" target="_blank" data-smartkarma-citation="entities:12653:1">Avant Corp (3836 JP)</a> announced its <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213.pdf" target="_blank">Q2 earnings</a>, a <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213-1.pdf" target="_blank">reassignment</a> from the TSE2 to the TSE1, and an <a href="https://www.avantcorp.com/news/wp-content/uploads/2018/02/20180213-2.pdf" target="_blank">Offering</a>.</p><p>The Secondary Offering of 1.956mm shares is a selldown of about one-quarter of CEO Morikawa's shareholdings and what appears to be the majority of the position held by Wada Shigefumi. The greenshoe of 293k shares brings the total deal to 2.25mm shares…</p>

On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) Avant Corp (3836 JP) announced its Q2 earnings, a reassignment from the TSE2 to the TSE1, and an Offering.The Secondary Offering of 1.956mm shares is a selldown of about one-quarter of CEO Morikawa's shareholdings and what appears to be the majority of the position held by Wada Shigefumi. The greenshoe of 293k shares brings the total deal to 2.25mm shares…

Japan

MIROKU JYOHO SERVICE CO., LTD. provides accounting firms and companies with various management assistance services focused on its financial, accounting and tax practice systems.

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Miroku Jyoho Service (9928 JP)

Miroku Jyoho Service (TSE:9928)

Miroku Jyoho Service (TSE:9928) , which offers on-premises, hybrid (IaaS) and cloud accounting software to Japanese enterprises of various sizes.

Hurdle Rate

🇯🇵 Japan • Summer Results & Revisions First Cut - Southbound

SOUTHBOUND - Two weeks into the announcements of the June quarter-end period, it is clear that the momentum of Japanese listed corporate earnings...

Campbell Gunn

Global Equity Strategy U.S. Fed Cut, Now What?

With further consolidation likely for the broad indexes, we want to stick with areas of the market that have shown an ability to outperform despite...

Vermilion Research

Avant (3836 JP) I: The Offering

On February 13th, TSE2-listed smallcap (JPY 16.7bn market cap) accounting/planning/management software purveyor (software named DivaSystem) Avant...

Travis Lundy

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