Nabtesco (TSE:6268, Financial) is a small to medium sized Japanese industrial company that manufactures precision parts for a wide rangeof motion -control applications including robots, aircrafts, railway equipment, and construction equipment. 46% of its revenue is directly derived from sources outside of Japan. Pandemic related slowdowns in aircraft and construction equipment component sales offered the Funds a pricing opportunity early in the quarter in this rather above average Japanese business. The company’s products include reduction gears that allow industrial robots to make precise movements – sort of like the movements of a human elbow or wrist– and hydraulic pistons for applications such as construction machinery. Such products are typically critical to Nabtesco’s customers, with extremely demanding, world-leading specifications and a requirement for durability, allowing Nabtesco to enjoy a long term relationship with these customers. The company has also built significant market share in aircraft actuation systems, marine control systems, railway door systems and certain food packaging systems, establishing itself as the reference in motion control technologies.
Nabtesco enjoys stable margins, has had roughly 5% revenue growth over time, has compounded its intrinsic value at an estimated 7% including its dividend, and would appear to have the wind at its back because factory automation is a growth market. At initial purchase, the company was trading at approximately 13.5 times normalized earnings, which translates into an earnings yield of approximately 7.4%, comparing quite favorably to the 0.18% yield on the Japanese 10-year government bond. The company has also bought back shares on occasion.
From Tweedy Browne (Trades, Portfolio)'s second-quarter 2022 letter.
