By Jean-Baptiste Andrieux, Reporter, Trustnet, 28 June 2023:
The Tokyo Stock Exchange (TSE) fired a warning shot in late March to firms with a low price-to-book ratio, announcing that they will have to disclose their policies and specific initiatives for improvement, while non-compliers will be named and shamed.
A price-to-book ratio below 1x has been a feature of many Japanese businesses, including large-caps. Nikkei Asia reported on 1 April 2023 that Japanese blue-chips such as Toyota Motor, Mitsubishi UFJ Financial Group and SoftBank Group were not meeting the threshold required by the TSE.
Investors use the price-to-book ratio to identify undervalued businesses. It is calculated by dividing a company’s current share price by its book value per share. While a price-to-book ratio below 1x can signal to investors that the company does not have the potential to grow, it may also indicate that a firm’s capital is poorly exploited and that value can be unlocked…
AVI Japan Opportunity Trust
AVI Japan Opportunity Trust (AJOT), one of those activist investor funds, was launched in October 2018 in the IT Japanese Smaller Companies sector. The trust invests in over-capitalised mid- and small-cap Japanese equities and engage with the holding businesses’ management to help to unlock value.
James Carthew, head of investment company research at QuotedData, said: “Decades of extreme conservatism have left many Japanese businesses with inefficient balance sheets/business models.
“AJOT can take positions in these businesses and persuade them of the merits of unlocking some of that latent value. This gives a third way to extract value from an investment in the country and crucially one that can still add value even when markets are falling.”
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