4071 Plus Alpha Consulting

The company sells Talent Palette, software big Japanese employers use to track and develop their staff. First-half revenue rose 14% and operating profit rose 32%; the smaller marketing unit is shrinking.

▲ Talent Palette leads among employers with 1,000-plus staff, and new partnerships with Mynavi and Rakus open the small-company market it never reached.  ▼ The marketing product lost 96 customers in a year, and group growth has slowed from 23% to a 14% forecast.

Its language engine has been tuned on Japanese business text for 17 years. Only 0.36% of HR customers leave each month, and they accepted price rises averaging 11%.

▲ Customers paid the higher prices and almost none left. Large customers pay five times what small ones do, so the mix keeps improving.  ▼ About two-thirds of revenue comes from one product. Price rises cannot continue forever, and two past acquisitions were written off.

Activist fund Oasis owns 10.6% and says it wants more. Management has already given ground: the payout target rose to 30%, the dividend went from ¥38 to ¥50, shares the company held were cancelled.

▲ The activist has extracted concessions without a fight. The obvious next concession is the company's first standing buyback program.  ▼ No buyback exists yet. Net cash of ¥14.6bn keeps growing, and founders holding about 33% can stall Oasis for years.

The business sells for 13.1 years of operating profit. Its capital earns 42.6%. Net cash is 13.6% of the market cap; 40.8% of profit goes out as dividends. Today's dividend yield is 1.9%. Even paying out all of its profit, the yield at today's price would be 4.6% — below the 6% floor, so the case rests on growth and the other squares. At the current payout, the cash pile alone equals today's market cap in about 31.8 years. How this valuation floor works →