Question from a reader III

by admin on February 11, 2013

Question: How about Clip Corp?

Answer: I do not like the competitive situation. Barriers are low. If teachers feel underpaid they can band together to set up their own shop. Word on the street is that competition in their space is increasing, apparently. Also, how could you possibly lose money on selling basic food to kids, when the kids turn up to the same place every day? Is this some kind of charity or something?  Obviously, the point of buying it is the negative enterprise value and the stability of the business, however, if there will be any catalysts it is more likely they will be negative. They just put out a relatively weak quarter, given their guidance. And, I suspect they will have to spend more money on promotions in the near term.

{ 3 comments… read them below or add one }

mermaid February 19, 2013 at 9:19 pm

You mentioned 7873 (ARRK) some time ago, and looking at it, I’m wondering what you see in it, given dilution/restructuring costs mounting?


admin March 13, 2013 at 4:34 pm

Thank you for your comment, and sorry for not replying sooner.

Yes, the dilution would be pretty nasty.

Now, the formula is written extremely badly, but it seems to be that if the A preference shareholders wanted to convert (1 to 11 years after the swap), they would get the amount they paid less the amount equivalent to 15 yen per share, and for the B and C shares it is 145 yen per share. Also, considering that the preference shares are held by big pinstriped financial institutions, do you think they want to be stuck with common equity when they went in for debt originally? Big dinosaur institutions don’t think like Daniel Drew.

The idea originally was that the institutions will want their money repaid, which the company will do out of ongoing cashflow, shrinking the EV as it does so, and also selling related company shares etc. to do it.

The operations are actually doing ok, just that they are restructuring, and you can’t see it in the bottom line yet, plus they had some bad trouble with the Thai floods which they are recovering from.

Nonetheless, even with the expected improvement in operating performance, I actually think that the risk-reward could be better, and, to be honest, there is no clever way of quantifying the actual dilution risk here, and they even put out some disappointing guidance a few weeks ago, which put me off the story for now anyway.


Hugh March 5, 2013 at 1:11 pm


I just wanted to thank you for responding. I appreciate hearing your thoughts on Clip Corp. For someone who is not fluent in Japanese, I like hearing what a Japanese fluent value investor thinks about specific Japanese companies.



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