Warren Buffett’s Berkshire Hathaway recently took a stake in Mitsui ( 三井物産 ), which is a Japanese trading company. This week, I fundamentally analyze Mitsui’s stock. I review Mitsui’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. I look at if Mitsui, traded on the Japanese market, provides the margin of safety and growth prospect that value investors seek. Hope you all find this 17 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 $2,272 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), 1,707 million shares outstanding, and $40.278 million of long term debt, the DCF analysis yields us a negative intrinsic value number, which is not meaningful. We got a negative intrinsic value because the free cash flow is not growing and accumulating fast enough to reduce Mitsui’s debt. Upon disregarding the long term debt, the intrinsic value comes to $17.67 per share. Using the current stock price of about $17.25 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 7.5%.
Timestamp
0:00 Introduction
0:34 Business Segments
1:52 Key Ratios Analysis
10:38 Discounted Cash Flow Analysis / Intrinsic Value
13:14 Expected Rate of Return Calculation
14:44 Summary / Conclusion
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References:
2020 Integrated Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: Mitsui & Co., Ltd. is one of the largest sogo shosha in Japan; it is part of the Mitsui Group, and Its business area covers energy, machinery, chemicals, food, textile, logistics, finance, and more.
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