Bowing to activist investor Dan Loeb’s demand, Japan’s robot maker Fanuc plans to enhance shareholder value by considering dividend hikes and stock buybacks, according to media reports.
The Japanese robot maker will also create a shareholder relations department by April 1.
Fanuc to enhance shareholder value
Fanuc Ltd’s president Yoshiharu Inaba indicated Friday that his company was considering dividend hikes and stock buybacks in light of Third Point’s public demands for better shareholder returns. Reacting to the latest news, shares in the famously secretive Fanuc surged 13% in heavy trading.
As reported by ValueWalk, last month activist investor Dan Loeb asked Fanuc to conduct a large buyback soon and fix its “blatant capital inefficiency”. In his Q4 letter to shareholders, the activist investor disclosed that his hedge fund Third Point has taken a stake in Fanuc.
In its letter to Fanuc last month, Third Point urged the robot maker to make better use of its $8.5 billion cash pile by buying back shares. In his interview with the Financial Times, Loeb said Fanuc trades at a low valuation because they haven’t yet moved forward with society in respecting shareholders and implementing better capital allocation.
However, the robot maker’s president Yoshiharu Inaba indicated earlier that the company had no plans to change its investor relations policy and would continue to expand its core industrial robot business. Moreover, last month, the cash-rich Fanuc disclosed that it would double its planned investment in a new factory to 100 billion yen ($844 million).
Fanuc’s latest move – a catalyst for re-rating: Goldman Sachs
Nicknamed “Fortress Fanuc”, the Japanese robot maker has a strong reputation for profitability, insular management and minimal communication with shareholders.
Yuichiro Isayama and Yuki Kawanishi of Goldman Sachs published a research note soon after last Friday’s reported announcement by Fanuc. In their research note dated March 13, 2015, the analysts point out if the Nikkei article is correct, Fanuc’s plans to enhance shareholder value would be a positive surprise and it could become a catalyst for re-rating.
The Goldman Sachs analysts argue the latest announcement would clearly be a surprise to the market considering Fanuc’s IR and shareholder return stance to-date. The analysts note the Japan’s robot maker stopped holding analyst briefings in FY3/11, with limited investor relations activities since then. However, they note from around the time of the FY3/14 results announcement, they have seen signs of improvement with the resumption of plant tours and more detailed quarterly earnings materials.
The analysts believe if IR and shareholder returns improve quickly, it would be a positive development from both capital efficiency and valuation perspectives.
Enthused by the latest developments, the Goldman Sachs analysts reiterated their “Conviction Buy” on Fanuc and kept the stock on the GS SUSTAIN Japan List.
Analysts at Nomura state:
We think Fanuc’s new policy will have a major effect on other companies. In particular, net-cash companies that return a smaller percentage of their earnings to shareholders than Fanuc does may decide to increase their shareholder returns. Given Fanuc’s
status as one of Japan’s top companies (in terms of competitiveness and profit margins), its policies attract the attention of other companies.