IVA International always provides a great place to mine value ideas. The fund's eclectic holdings include many great companies the average American investor has never heard of. David Goodloe of GuruFocus wrote a great article on some of these holdings. I wanted to focus on Yokogawa Electric (YOKEF, Financial)(YOKEY, Financial).
Yokogawa is a Japanese software and IT company. The company has a market cap of 355 billion yen ($3.47 billion), trades at a price-earnings (P/E) ratio of 12.53 and has a dividend yield of 1.21% (according to the Financial Times). Sales growth has been phenomenal. Sales were 335 billion yen in 2012, 348 billion yen in 2013, 388 billion yen in 2014 and 405 billion yen in 2014, and trailing 12-month sales are 411 billion yen. It's a cyclical company. Sales collapsed from 376 billion yen in 2008 to only 316 billion yen in 2009. That's a drop!
The company has three main divisions: Control, Measurement and Aviation. Control accounted for 88.6% of sales, Measurement 5.7% and Aviation 5.7%. Japan accounts for 30.7% of market share, Asia 24.3%, Europe 8.4%, North America 9.8%, Middle East 11.3% and the rest of the world 15.5%. It seems Yokogawa has a small presence in the U.S.
For the latest fiscal year, profit was 30.1 billion yen with a whopping 7.3% profit margin. Gross profit was 42.7%. Return on equity was 13.2%. The number of shares outstanding, 268,624,510, has not budged by one single share in over a decade. I've never seen that before. Free cash flow was 21 billion yen.
Enough about the numbers. Let's figure out what Yokogawa does – controls and measurements. If you are a manufacturer and you need to know to the micron how thick something must be cut, Yokogawa has the technology. If you need your equipment to shut off to prevent a fire, Yokogawa has fire safety equipment. Supervisory control and data acquisition (SCADA) can be used to monitor natural gas and oil production and pipelines. Controls for temperature and pressure. Sensors for paper manufacturing. Ricoh bought a division from Yokogawa that measures brain activity back in March. Yokogawa bought British oil services company KBC Advanced (KBC, Financial) earlier this year to increase its presence in energy.
Industries listed include oil and gas, mining, power generation, pharmaceuticals, chemicals, water treatment, food, paper and steel. The commodities have no doubt pulled back. In July, quarterly operating profits fell 40% with the strong yen.
Some of Yokogawa's competitors include General Electric (GE, Financial), Schneider Electric (SU, Financial), Honeywell (HON, Financial), ABB (ABB, Financial), Emerson Electric (EMR, Financial) and Siemens (SIE, Financial). An article from Process and Control Engineering estimates the SCADA market will grow at 5% a year from 2014 to 2020. An article from late July in the Wall Street Journal sums up an issue: Manufacturing in China and Japan Can't Find its Mojo.
So is Yokogawa a buy? I don't know. It's a quality company to know about. Its products are top notch. The company has been around for over 100 years. Growth has been outstanding but will probably be affected by the yen and Asian manufacturing. Another stock to keep an eye on.
Disclosure: We own none of the stocks listed.
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