Monday, 12 November 2012

The land of the setting sun . . .

The Japanese economy shrank by an annualised 3.5%during the July/ September quarter. That's nearly the economic equivalent of another tsunami hitting the country. Exporters suffered big falls in shipments to both China and Europe. It now seems likely that October’s trade deficit could top Y1tn. It's speaks volumes for the JPY and given Japanese QE 8&9 are still with use I expect worse to follow.

I spent this morning looking into the share price of Shimano. Given the gloom and doom I was clearly looking for a cycling led silver lining. Unfortunately I'm not sure whether I wasted my time or not. In Q3 Shimano made Y58 per share for a YTD total of 224. A lot of analyts will adjust for the tradiotnal end of year seasonal effect of the holidays so I'm guessing a lot will have Q4 estimates of around Y90 per share. Ok, so lets say that they only make Y80 to be conservative, with a share price of 5030 that put's this one on about 17x this year. Let's then say that next year they see a recovery of 10% in net EPS, then that still means the stock is trading on 15x. If you ask me that's expensive even with a div yield of 1% in a a market starved of income. You have to rely on a lot of people buying fishing gear and cycling goods to make this one a part of your portfolio. Oh, the stock is up 40% this year . . .

Shimano - fun with numbers

Analysts covering the stock according to the FT are clustered around a 5850 price target, which I think implies a Q4 forecast of closer to Y100 per share. With all the stimulus out there in the world right now and looming problems in Europe and tax rises likely in the US what are the odds these guys surprise on the upside? You be the judge:

Clearly the strong Yen makes a big difference to this company, as it does to all of Japan Inc.'s exporters. That of course is why the balance of trade (ok - a long with factors such as China tensions) makes Japan an investment nightmare. Remember too that about 25% of Japanese are over 65 and the birth rate will mean a decline in the population for the foreseeable future and I think you'll start to understand why Japan's debt might never get repaid.

The demographics for cycling are of course positive. Cycling is the new golf for men of my age. The conclusion that an expanding waist line and a time poor society means that 4 hours at a club once a week makes no sense for your wallet or your health. Mind you my golfing friends will point to the traffic on our roads and say "you don't get that on a golf course". Fair enough!

So what next?

I stayed off the bike today to get some things done around the house. The weather is amazing here and the summer is still ahead. I found myself reaching for my lightest weight jerseys today in preparation for the eventual run of high 30's temperatures we're bound to see. I have a team Liquigas shirt that worked a treat yesterday. Modern fabrics are amazing when it comes to drawing the sweat away from your body. This jersey as well as my Giro d'Italia leader's pink jersey have several perferated panels for extra airflow. I like the Giro jersey's fabric so much I've ordered a blue KoM version to supplement my collection. I know everyone likes black, but I prefer something that makes me a little less stealthy around town:


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