Do you know the word "PBR" that has been a hot topic in the market recently?

In Japanese, it is called "price book value ratio".

An index used to determine whether a stock is undervalued or overvalued, and indicates how many times the stock price is the net assets per share (total assets minus liabilities, which is the same as the company's "liquidation value"). I'm here.

If the PBR is less than 1x, it means that the company is below its liquidation value, which means it is undervalued or not valued in the market.

In Japan, more than half of the major companies have fallen into "PBR less than 1 times", and the percentage is outstanding compared to Europe and the United States.

However, investors are now focusing on "low PBR" stocks that have been neglected for many years, and there are even voices that it may be a bubble.

I asked what was going on.

(Economics Department reporter Kei Nakazawa)

Solid Japanese stocks

First, let's look back at the market in the last month and February.

The US Dow Jones Industrial Average fell by 1,429 dollars, or 4.1%, during this period due to concerns about the Fed's interest rate hike being prolonged, while the Nikkei Stock Average rose by 118 yen, or 0.4%.

Reasons for the resilience of Japanese stocks include the continued depreciation of the yen and the remarks by Kazuo Ueda, a candidate for the governor of the Bank of Japan, that he is conscious of the continuation of monetary easing. Some market insiders recalled that it had been a month since they had gathered.

Prominent Japan’s “Low PBR”

Why did PBR attract attention?

Before that, let's take a quick look at the current PBR of Japanese stocks.

In fact, compared to Europe and the United States, Japanese stocks have a significantly higher PBR than 1x.

The difference is obvious when looking at the PBR situation of the stocks that make up the major stock indices in Japan, the United States, and Europe (Tokyo Stock Price Index / TOPIX, S&P500, STOXX 600).

The low PBR of Japanese companies is nothing new.

Since the latter half of the 1990s, stock prices have continued to stagnate in Japan due to financial instability and economic depression, and many companies have fallen below 1x PBR.

Since then, the PBR has fluctuated along with the stock price movement, but the situation continues that half of the companies have a PBR less than 1x.

Why are the PBRs of Japanese companies so low?

Various factors have been pointed out.

There are many internal reserves and cross-shareholdings of companies, and the return to shareholders is less than in Europe and the United States. It's a point.

The Ministry of Economy, Trade and Industry's Economic and Industrial Policy Innovative Subcommittee compiled an interim summary in June last year, and summarized the current situation as "the international competitiveness and value creation ability of Japanese companies are declining."

In addition, "We aim to increase the percentage of companies with a PBR of 1 or more to 80% by 2030," and "For companies with a PBR of less than 1, we will formulate a rational plan for a certain period of time to exceed 1. We demand that it be made public,” and presented goals and specific measures.

However, the market reaction at that time was limited.

TSE in action

This is a long introduction, but I would like to return to the question of why the PBR of Japanese stocks has attracted so much attention.

It all started on January 25th.

Countermeasures for "reforming awareness of capital costs and stock prices" compiled by the Tokyo Stock Exchange's "Follow-up Conference on Review of Market Segmentation."

Among them, targeting the prime market and the standard market, starting this spring, we will provide policies, specific initiatives, and progress toward improvement to companies whose PBR is consistently below 1x. We strongly request disclosure.”

PBR drops below 1x, companies start moving

Dai Nippon Printing, which will soon celebrate its 150th anniversary, has started to move in response to the TSE.

In the basic management policy announced on February 9, the company clarified its plan for the largest share buyback in its history to improve capital efficiency, stating that it aims to achieve a PBR of more than 1x as soon as possible. I made it clear.

It is rare for a company to set a PBR level as a target. I received severe criticism.I had a strong sense of crisis that I had to aim for these goals in order to survive as a company."

Dai Nippon Printing has been "less than 1 times PBR" for more than 10 years, but when this policy was announced, the stock price soared.

The PBR, which was 0.78x prior to the announcement, has risen to over 0.9x this week.

Furthermore, on February 13, Citizen Watch announced that it would buy back up to 75 million shares (40 billion yen), which is more than 25% of the total number of issued shares, in conjunction with the announcement of its financial results.

During the question-and-answer session, the company explained, "We decided on the amount while taking into account the Tokyo Stock Exchange's policy on improving corporate value. We will continue to invest for business growth and rationalization."

The stock price also rose significantly, and the PBR, which was 0.73 times before the announcement, exceeded 1 times the week after the announcement.

The trend of rising stock prices has spread to other low PBR stocks, and among the TOPIX constituent stocks, the "TOPIX Small Value Index", which collects stocks with relatively small market capitalization and low PBR, was released this week in February 2018. Since then, it has risen to the level for the first time in about five years.

Some market participants say, "It's a low PBR bubble."

how companies face the market

On the other hand, there are voices of concern about this situation.

Some market participants say, "If you use surplus funds to buy back your own shares, you can raise your PBR in the short term. Even if your business performance is not improving, you can rely on easy share buybacks. Some people have pointed out that this will not lead to an improvement in intrinsic corporate value.”

We also interviewed Mr. Tokikokuji, President of Orbis Investments Japan, an investment company based in Bermuda, which specializes in long-term investment in undervalued stocks.

“Movement to invest in Japanese undervalued stocks is spreading, but this may be a historic turning point. Companies should always search for growth and make aggressive investments at the right time.Of course, there are times when it is necessary to return profits to shareholders through share buybacks.It is essential for companies to take such timely measures. Is it possible that

the movement to eliminate the problem of “PBR below 1x” is improving corporate value and truly increasing attractiveness as an investment destination?

In the booming "low PBR boom", how companies face the market is being questioned.

attention schedule

The BOJ will hold its final monetary policy meeting under the current Governor Kuroda next week from 9th to 10th.

The results of the meeting and Governor Kuroda's remarks at the press conference are attracting attention as there is speculation that the policy may be revised again.

In the United States, the latest economic report "Beige Book" compiled by 12 regional Federal Reserve Banks in the United States will be released, and employment statistics will be announced.

In either case, the Fed's monetary policy meeting scheduled for late March will be considered important as a basis for decisions such as raising interest rates, so depending on the content, the market may move significantly.