5: Teddy Okuyama on Property Data Bank, The Dollar At Crossroads, Liberty on Mentors, Nerdwriter dissects Kendrick Lamar
"There is no new global order, just a chaotic transition to uncertainty" — Jean-Pierre Lehmann
Investing & Business
Teddy Okuyama’s 200-Day Challenge
Teddy Okuyama has started doing write-ups for japanese small-cap software stocks, 1 per day in a 200-day challenge!
Installment #4 is about Property Data Bank (4389)
PDB is a software company specialized in cloud services for the Real Estate industry. Its core offerings help property managers to manage and analyze data on their portfolio.
It has been growing at 5yr CAGR (FY16-20coe) of 18.5% for sales and 34.5% for OP, with a growth margin ranging around 47% to 56%. The balance sheet appears safe, with cash and equivalents amounting to slightly more than 10% of market cap and a shareholders’ equity ratio of 78.8%. FY16 to FY20 ROE has trended from 10.1%, 14.3%, 14.7%, 11.9%, to 17.9%. Shares trading at NTM EV/sales of 4.32x (EV/EBIT of 23.52x) don’t look particularly expensive.
Ownership shows that Shimizu Corp, one of the 5 largest Japanese contractors, is the anchor shareholder with c.24% of shares, followed by another real estate company with c.12%. The president of Databank owns c.9%, followed by one of the founders with c.8%.
Teddy Okuyama’s selected takeaways:
Property Databank is a long-standing SaaS1 player that branched off of Shimizu Corporation (23.84% shareholder), a major general contractor in Japan. It stands out among real estate tech peers given its dominant market share among J-REITs, despite still being only $100mn in market cap.
The company has two business segments: cloud services and solution services. Essentially, the business model revolves around the “SaaS” service called @Property, which drives all the recurring revenue, and additional customized services on top of that would be classified as solution services.
I estimate its ARR to be around ¥1.3bn as of Q3 FY20, which is about 12% of market cap. The interesting storyline is the release of @Knowledge, a software lineup for centralized document management that will likely contribute to cross-selling (higher ARPA).
Management aims to grow sales at a CAGR of 12.8% in the three-year MTBP. Cash stockpile at 11.1% of market cap feels slightly high for a growth-stage company. Feels a little confounding to me why management plans to curtail the SG&A ratio from 30% to 28%. Given the likelihood of the business model being labor intensive (i.e. need sales personnel to do the grunt work of helping property managers bring operations onto the cloud), I think PDB needs to be much more aggressive with hiring and related investments.
The Dollar’s Fragile Hegemony
Interesting article by Project Syndicate on the uncertain future of the greenback’s dominance.
Today, it seems to be an article of faith among US policymakers and many economists that the world’s appetite for dollar debt is virtually insatiable. But a modernization of China’s exchange-rate arrangements could deal the dollar’s status a painful blow.
The dollar has been dominating international exchanges for more than 70 years, giving the USA an “exorbitant privilege” to quote the former French president Valérie Giscard d’Estaing. However, its dominance seems to have topped and China’s renmibi is increasingly gaining traction as a challenger for international trade. In fact, it would even be a logical step:
The long-standing argument for a more flexible Chinese currency is that China is simply too big to let its economy dance to the US Federal Reserve’s tune.
[…]
Chinese policymakers face many obstacles in trying to break away from the current renminbi peg. But, in characteristic style, they have slowly been laying the groundwork on many fronts.
[…]
In addition, the People’s Bank of China is far ahead of other major central banks in developing a central-bank digital currency. Although currently purely for domestic use, the PBOC’s digital currency ultimately will facilitate the renminbi’s international use
I believe the massive expansion of the M2 monetary supply to push through the coronavirus-induced depression is likely to be seen in the future as an inflexion point:
In a series of blog posts, legendary investor Ray Dalio detailed the research process carried out by the economics researchers employed at his fund, Bridgewater Associates. One of them is the breakdown of the archetypical rise and fall of an empire by factor:
I find this chart to resonate quite handsomely with the situation we have been witnessing over the last few years in the US/China relation:
The declining value of the standard education based on the American model (MBAs coming first to mind, but increasingly college degrees altogether)
The emergence of Asian financial centers
The increasing role played by China in innovation and new technologies (first by catering the most scientists to the US, later by developing a strong industrial complex on-shore, with a leadership in EVs and battery technologies)
Etc.
Coming back to the article by Project Syndicate:
There are striking parallels between Asia’s close alignment with the dollar today and the situation in Europe in the 1960s and early 1970s. But that era ended with high inflation and the collapse of the post-war Bretton Woods system of fixed exchange rates. Most of Europe then recognized that intra-European trade was more important than trade with the US. This led to the emergence of a Deutsche Mark bloc that decades later morphed into the single currency, the euro.
Thought-provoking stuff…
Why Your Mentors Seem Less Impressive Over Time - Liberty’s Highlights
Liberty came back on one of the pieces he wrote a while back on Medium on the “curse of knowledge” effect on the mentor-mentee relationship.
First, I think that this quote contains important insight:
Almost everything we know, we learned at some point. The concepts of ‘compound interest’ or of ‘anchoring bias’ might seem pretty straightforward, but a younger version of you heard of these for the first time and — if the concepts stuck and were integrated — it changed your view of the world, at least a little.
It is not the point Liberty is making here, but I would add “from someone”. Everything we know, we learned from someone at some point. It is very difficult to come up with 100% original thought, and we are animals built to learn by mimicking.
People who have been around the field for a while become increasingly disenchanted with their old mentors and talk about how they used to have good insights but now mostly recycle the same things, their best stuff was their earlier stuff, etc.
It often leads to a kind of retroactive downgrade of the mentor’s value, probably through a “curse of knowledge” effect where, once you know something, it’s hard to put yourself back in the shoes of someone who doesn’t know, and see how valuable being taught these things was, and how non-obvious they used to be to you.
I have seen it happening to some people whose writings I follow closely. But I don’t view it as a negative consequence. Instead I consider all the progress made in my own appropriation of the concepts, and as it is the case for reading, I try to engage with the content in a dialectical way, trying to use the foundations the regular confrontation with the content gave me to develop my own nuances. And that’s where you are able to develop your own, original and interesting world view, that no one but you could come up with (precisely because of the original intersection of your different influences).
Skill is non-linear: it can be just as hard, or likely harder, to go the last 10% of the way as it is to go the first 90%, since by that point the insights logically have to be harder to uncover and sources of progress have to be more difficult to tap.
… And the same goes for developing your own worldview.
Arts & History
How Kendrick Lamar Collaborates
David Perell, who has a quirck for analyzing the creative process of world-class talent from different disciplines, has produced several great pieces of content on Kendrick Lamar.
This week he shared a video produced by Nerdwriter which analyses the (collaborative) creative process behind the production of the “Element” music video:
To be honest, I’ve never really understood the popularity of music videos. They rarely add meaning to the music, and as an outsider looking in, they feel like the most corporate part of the music industry. And yet, they're consistently the most popular videos on YouTube. But the “Element” music video is an exception.
I must agree after seeing the short but dense video by Nerdwriter: there is so much in there.
Treat for the Eyes
Because the money is US currency and Magritte has an art dealer in New York, Alexander Iolas, I could assume the break means a break from the past, it's almost as if we are arriving at the new world (America) on a ship. — Richard L. Matteson Jr.
Other Interesting Links
Until next week!
Antoine
Following a reader comment, Teddy Okuyama corrected his use of the SaaS qualificative, as the service does not appear to have enough customization options