Motley Fool: Lending Value

ShareHitachi Capital (LSE: HCU) cap£109mDirectors own<1%Other majors65%Eps y/e 31/03/0626.4pHistorical P/E9.7Div y/e 31/03/0611pHistorical yield4.3%Tangible book 30/09/06138pP/TBV1.9Eps forecast 31/03/0727.6pEps forecast 31/03/0829.5pForward P/E 31/03/079.3Div forecast 31/03/0712pDiv forecast 31/03/0813pForward yield 31/03/074.7%

Hitachi is a finance company, lending money for business and consumer purchases. It is not a pyad play for two reasons. Firstly, it trades well over book with a P/TBV of 1.9 and secondly, it does not have net cash. Companies involved in money lending rarely have net cash because they normally finance the majority of their lending via debt. The effect is that gearing is enormous and way above any kind of usual value criterion.

If I took gearing into account, it would rule out nearly all banks and finance companies as value plays so I tend to ignore it when considering this type of business, otherwise I would never buy them even though I believe they can be attractive. Their very business consists of borrowing and lending cash, so net debt or net cash figures are not even usually supplied by databases for banks and the like….

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