Author: Aki Matsumoto

Executive Director, Head of CG Research at METRICAL INC., involving in the investment management since 1984. Chartered Financial Analyst.

METRICAL: The First Step in Board Diversity

2021-06-01 posted by

We have long considered the number of female directors as one of the key factors in board practices to measure how a company is willing to change, and according to the BDTI survey (3,622 companies as of March 26, 2021), the percentage of female directors on boards has improved significantly from 1.4% in 2016 but still only accounts for 6% of the total (see chart below).

Metrical’s survey of the universe companies, mainly those listed on the Tokyo Stock Exchange 1st section, also shows how few female directors there are (see chart below). Of the 1,729 listed companies in the universe, 643 (37.2% of all universe companies) have no female directors, 676 (39.1%) have one female director, and only 410 (23.7%) have two or more female directors.

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Metrical: CG Stock Performance: April 2021

2021-05-10 posted by

Stock markets ended the month of April in a downtrend, mainly due to concerns about the spread of a COVID-19 infection. The performance of the CG Top 20 stocks over the month outperformed the Topix and JPX400, limiting the decline. In April, the stock market closed lower as traders took stock of their positions before […]

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METRICAL:CG Stock Performance: February 2021

2021-03-01 posted by

February stocks edged lower with a sharp decline. CG Top 20 stocks underperformed Topix and JPX400 during the month.

In February, the stock market immediately made up for the plunge at the end of the previous month, with the Nikkei 225 index getting off to a strong start, reaching the 30,000-yen level for the first time in 30 years. However, the stocks edged lower with a sharp decline on the last day of the month, due to a plunge in U.S. stocks, especially technology stocks, on concerns about rising U.S. Treasury yields.
CG Top 20 CG rose 1.61% during the month, while Topix and JPX400 indices gained 3.17% and 2.91%, respectively. Cumulative performance of CG Top 20 Stocks continued to outperform significantly as shown in the chart below.

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METRICAL: CG Stock Performance (Japan): January 2021

2021-02-01 posted by

January stock prices edged lower after surging in the middle of the month. CG Top 20 stocks underperformed against Topix and JPX400 during the 1-month period

The stock market opened higher in January on the back of the stocks rally at the end of the previous month. After that, the market surged on the expectation of solid corporate profits and the observation of continued global monetary easing, but closed sharply lower due to the increased volatility and sharp decline in the US stocks at the end of the month.
CG Top 20 underperformed against both Topix and JPX400 for the month. CG Top 20 slid 0.89%, while Topix and JPX400 rose 0.29% and 0.49% respectively. The cumulative performance of CG Top 20 keeps significant outperformance as shown in the chart below.

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METRICAL:Post-COVID-19 Focuses on Family Companies

2020-12-02 posted by

The environment surrounding our business is changing significantly in line with changes in social life due to the spread of the new corona virus infection. The biggest challenge for management is to adapt to these changes in the environment with a post-corona scenario in mind. We believe that one of the keys to adapting to these changes in a timely and flexible manner is management leadership. We expect to see a lot of interest in the relatively fast-moving family-owned companies. In the past, METRICAL research has shown that companies owned by founder’s families with 20% or more of their companies performing significantly better than average. We would like to focus again on the latest data. The following two charts show the distribution of ROE (actual for past 3-5 years) and Tobin’s Q between family-owned companies (those with 20% or more ownership) and the universe of 1,743 firms, with both ROE and Tobin’s Q being higher for family companies than for the universe of 1,743 companies’ distribution. It remains to be seen whether the family companies will be able to adapt to these changes at a rapid pace and achieve higher profitability, which will be reflected in their stock performance.

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METRICAL:CG Stock Performance: November 2020

2020-12-01 posted by

November stocks surged on global upswing.
CG Top 20 stocks under performed slightly against TOPIX and JPX400.

Stock prices rose Jumped in November on expectations of an economic recovery after Pfizer filed for a new coronavirus vaccine and further liquidity expansion following the U.S. FOMC meeting.

TOPIX and JPX400 indices gained 10.67% and 11.72%, respectively, during the month, while the CG Rating Top 20 ended the month with a 9.16% gain, which was not as large as the two indices.

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METRICAL:CG Top 20 Stocks Fell With Underperformance Against TOPIX and JPX400

2020-11-02 posted by

After an upward trend through the previous months, stock prices fell toward the end of the month in October on concerns about the rising number of coronavirus cases in Europe and North America. The CG Rating Score Top 20 stock indexes significantly underperformed the two indices. CG Top 20 stock prices fell 5.41% in October, while TOPIX and JPX400 closed down 2.81% and 2.75% respectively. However, the cumulative return of CG Top 20 stock prices kept significant outperformance against the both indices (see chart below).

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METRICAL: September CG Stock Performance

2020-10-02 posted by

September stocks edged slightly higher after surged in the previous month. CG Top 20 stocks gained with solid outperformed against TOPIX and JPX400.

Stock prices kept positive return in September, followed by the rally in the previous few months.TOPIX and JPX400 closed slightly higher +0.52% and +0.11% respectively for the month. CG Top 20 stocks average climbed 2.28% for the month, increasing the outperformance against the both market indices.

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METRICAL:Stock Prices of Family Companies and Investment Strategies

2020-10-02 posted by

In the previous article, based on the study classified the 3 groups of the universe companies by the ownership of major shareholders: (a) Companies with major shareholders that hold >=50% of shares, (b) Companies with major shareholders that hold >=20% and <50% of shares and (c) Companies without major shareholders that hold >=20% of shares. A subsidiary and an affiliate company owned by a parent company or founder’s family company show superior performance in the key performance measures such as ROA and ROE and Tobin’s Q. In this point, it would be an effective way for a listed parent company to raise the return measures such as ROA and ROE of the parent company by consolidating the subsidiary or the affiliate company with relatively higher return. Such a case is increasingly occurred. We introduced investment strategies to buy listed subsidiaries (and affiliated companies) in anticipation of the acquisition of listed subsidiaries with high profit margins of the parent company.
At this time, on the contrary, we focused on family companies whose stock prices have remained lower. There are several purposes for going public, but if one of the purposes is the diversification of funding measures, the purpose wouldn’t’ be achieved in this situation where the stock price is low. There would be an option to reconsider listing on the stock market. From the management side, going private would be an alternative through MBO etc. The table below shows the family companies in our universe with Tobin’s Q less than 0.8, divided into 2 groups of family’s ownerships more than 50% or more than 20% and less than 50%. For a company that suffered low ROA and ROE, the low performance would be a reason for the low share price. However, some companies that have high ROA and ROE are traded at low. For a company in which there is no problem with return performance, but the share price remains low, it may be an option to consider “going private.” Aside from whether or not an investor actually acts such an effort in the engagement, this is an investment strategy to focus on such a viewpoint.

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METRICAL:Corporate Government Rating of Japan’s 1,800 Companies (July 2020)

2020-08-06 posted by

So far, we have been conducting analysis focusing on the relationship between improvement of corporate governance and stock price and key performance measures (ROE, ROA). This is the reason that we are keeping close eyes on the enhancement of corporate governance in the perspective of long-term investors. In addition, we decided to analyze the key performance measures based on the past 3 years average ROE and ROA from this month, as maximizing the shareholder value for the long-term or sustainability is a common goal of public companies and shareholders.

It goes without saying that the stock price is one of the important indicators of a public company. In the previous monthly letter as well, I mentioned that the disclosure information of IRs and shareholder meetings is highly correlated with stock prices (Tobin’s Q), key performance measures (ROE, ROA), and comprehensive corporate governance scores. Information disclosure is a very important starting point for management transparency. In fact, the stock price also shows the results of efforts to disclose the above information. Metrical reshuffles the composites of the top 20 companies based on the total corporate governance score as of July every year and provides the performance comparison between CG Top20 stock prices and the stock market indices (TOPIX, JPX400) monthly. It was this month in July that we reviewed the 20 composite companies (the corporate governance score itself changes each month). Lately, the members of the composite companies of CG Top 20 changed from the limited large companies for several years ago, as we expanded the universe from slightly more than 500 companies to 1,800 companies and other companies are willing to improve the corporate governance. This year, 6 companies have been replaced since last year. The 4 completely new companies are Shionogi Pharmaceuticals, Meitec, Kenedix, Net One Systems and NSD. Kakaku.com and Omron returned to the top 20 club again, raising the scores.

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