At Steel Partners, our slogan is: “Invest on the basis of value, not popularity.” Although Japan is not a popular place with foreign investors, as evidenced by the recent outflow of capital, we believe that tremendous value still exists, much as it did in 2000 when we began to investigate opportunities in the country.
As a value investor, we seek undervalued companies and spend a great deal of time studying why their shares are trading at less than their true worth and what we believe these companies could do to eliminate this “value” gap. Our hope is that management will proactively take steps to close this gap so that the market will recognise the true value of the world-class companies and brands in our portfolio, including Nissin Cup Noodle, Sapporo beer and Brother office products.
In the past two years, the stock prices of some of our portfolio companies have fallen due to a decline in operating profits and margins. Many of the companies – such as Noritz and Ezaki Glico – have consistently missed their targeted operating budgets. Several have continued to misallocate capital, resulting in their failure to achieve an 8 per cent return on equity, the minimum rate deemed acceptable by Japan’s Pension Fund Association.
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