Apr

21

The results of "stock screen" Friday provided a fun and surprising riddle:

Among all of the developed markets, what is the ONLY mega-cap stock (>US$ 50 Billion) which is currently trading at under 65% of it's stated tangible book value?

Hint: It's not Berkshire Hathaway, but the company does have something in common with Warren Buffett.

Tim Melvin writes:

It's AIG, but that tangible book is a moving target at best.

Mark Schuetz writes:

I see both MTU (Mitsubishi UFJ Financial Group) and NTT (Nippon Telegraph & Telephone). I guess I'm not enough of a Buffett follower to make the connection though.

Rocky Humbert responds:

Mark, you get the buzzer– and lose everything in the final jeopardy round!! Although Bloomberg shows NTT to be trading far below book in their screening algorithm, a closer examination of NTT's balance sheet reveals Bloomberg is wrong!

Tim Melvin writes:

It's below stated book but at roughly tangible book right now…

Rocky Humbert writes:

Agreed.

So, the meal-for-a-lifetime thought follows:

MTU is trading at about 65% of tangible book. Citi is trading roughly at tangible book. And Citi got a Get-Out-Of-Jail card from the US government. Yet — over the past 5 and 10 years, MTU stock (despite a horrible RoE) has still outperformed Citi nicely in local currency terms!!And for US$-based investors, MTU has outperformed Citi substantially.

Nonetheless, Mr. Market is now offering a 35% haircut for MTU's assets and a 0% haircut for Citi's assets…. a striking commentary about investor preference and expectations. Note also that the slug of MS stock that MTU received this morning (as part of the perferred conversion) is trading around 114% of book.

p.s. I still remember attending a roadshow for Japanese bank stocks in the late 1980's during which the White Shoe underwriting firm explained that Japanese banks deserved a price/book multiple of 250%-300%. Presumably, the same analyst is today explaining why the same companies deserve a price/book multiple of 0.6….
 


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