Warren Buffett’s Berkshire Hathaway recently took a stake in Mitsubishi ( 三菱商事株式会社 ), which is a Japanese trading company. This week, I fundamentally analyze Mitsubishi’s stock. I review Mitsubishi’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment.
In the recent months, the US stock market is reaching all time highs, and better value investment opportunities are likely to be found in international markets. Mitsubishi, traded on the Japanese market, may provide the margin of safety and growth prospect that value investors seek. Hope you all find this 18.75 minute video blog interesting. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), etc.
After taking into account the current free cash flow of $4,988 million figure, a 3% growth rate of FCF (growth for the next 10 years), 10% discount rate, 2% long term growth rate (growth from 10 year mark to perpetuity), 1,496 million shares outstanding, and $40.832 million of long term debt, the DCF analysis yields us an intrinsic value of $16.97 per share. Using the current stock price of about $24.06 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 14.9%.
Timestamp
0:00 Introduction
0:35 Business Segments
3:52 Key Ratios Analysis
13:36 Discounted Cash Flow Analysis / Intrinsic Value
15:44 Expected Rate of Return Calculation
16:50 Summary / Conclusion
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References:
2020 Integrated Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Mitsubishi Corporation is Japan’s largest trading company and a member of the Mitsubishi keiretsu. As of 2019, Mitsubishi Corporation employs over 79,000 people and has seven business segments, including finance, banking, energy, machinery, chemicals, and food.
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