5843 Nippon Insure

Nippon Insure guarantees apartment rent so tenants no longer need a relative to co-sign. Renewal fees from past contracts now bring in about 39% of revenue at almost no extra cost.

▲ Each year's new contracts keep paying renewal fees for years. First-half operating margin reached 28.6%, and fewer tenants are defaulting.  ▼ New contracts fell 1.4% in the first half. If new signings stall, the renewal income stops growing within two or three years.

The company runs only seven branches, mostly in Kyushu and the big cities, while rivals run twenty or more. Growing share means opening branches slowly, one by one.

▲ Local agents and landlords keep sending it business, and its tenant screening is improving — defaults down, recoveries near 99%. The existing book is hard to take away.  ▼ National rivals reach far more agents, and nothing stops those agents from steering new tenants to bigger guarantors.

The founding Miyoshi family controls about 30%. The company pays out only 10% of profit, does no buybacks, and pays a family-related real estate firm 6.76% of guarantee revenue.

▲ Capital is piling up fast — the equity ratio rose from 47% to 51% in six months. That growing pile builds the case for a bigger payout.  ▼ A 10% payout from a business earning 24% on equity, family-directed spending, and a peer that pays just as little — small shareholders' cash stays trapped.

The business sells for 4.0 years of operating profit. Its capital earns 29.0%. Net cash is 40.3% of the market cap; 10.2% of profit goes out as dividends. Today's dividend yield is 1.1%. If the company paid out all of its profit, the yield at today's price would be 10.4% — past the 6% level where Japanese small caps tend to find buyers. Raising the payout 10 points a year would reach 6% in about 4.8 years. At the current payout, the cash pile alone equals today's market cap in about 6.4 years. How this valuation floor works →