2023-11-16 13:40:25 ET
Summary
- Panasonic's dividend per share is projected to expand by a +13.4% CAGR for the FY 2024-2028 time frame.
- Panasonic is currently exploring different options to restructure its business portfolio.
- PCRFY is still deserving of a Buy rating in view of its dividend growth outlook and the value creation potential associated with portfolio optimization.
Elevator Pitch
I still award a Buy investment rating to Panasonic Holdings (PCRFY) (PCRFF) [6752:JP] stock. My previous July 18, 2023 write-up was focused on explaining how Panasonic is leveraging growth opportunities associated with Electric Vehicles and AI.
With this latest article, I touch on Panasonic's capital return in the form of dividends and the company's ongoing review of its business portfolio. Panasonic trades at a -23% discount to book value, and I think that this valuation discount can narrow with dividend growth and portfolio restructuring actions in the future. Therefore, I have decided to retain my Buy rating for Panasonic.
Readers should be aware that Panasonic is traded on both the Japanese and Over-The-Counter markets. Panasonic's shares listed on the Tokyo Stock Exchange with the 6752:JP ticker symbol boast an average daily trading value of $90 million for the past three months as per S&P Capital IQ data. US stock brokers such as Interactive Brokers allow investors to trade in Panasonic's Japan-listed shares. The liquidity of Panasonic's OTC shares with the PCRFY ticker symbol is also pretty decent based on the three-month mean daily trading value of about $1.5 million (source: S&P Capital IQ ).
Shareholder Capital Return
Panasonic's interim dividend per share grew by an impressive +17% YoY from JPY15.0 in the first half of FY 2023 (April 1, 2022 to September 30, 2022) to JPY17.5 for 1H FY 2024 (YE March 31).
The increase in dividend payout for Panasonic in the most recent interim period is a reflection of both the improvement in cash flow generation and the management's willingness to distribute excess capital to its shareholders.
Free cash flow for Panasonic expanded by +133% from JPY69.3 billion for 1H FY 2023 to JPY161.5 billion in 1H FY 2024. The key driver of Panasonic's higher free cash flow was the company's successful inventory optimization efforts. Inventory turnover days for the company improved from 63.6 days in Q2 FY 2023 and 61.1 days in Q1 FY 2024 to 59.2 days for the second-quarter of fiscal 2024. These numbers are sourced from Panasonic's Q2 FY 2024 supplemental financial data disclosure .
At the company's Q2 FY 2024 earnings call , Panasonic stressed that "we will distribute stable and continuous dividends reflecting the progress of our medium-term strategy." This sends a clear message that consistent dividend payouts are an integral part of Panasonic's capital allocation framework.
Moving forward, the market sees Panasonic's dividend per share growing by a reasonably good +13.4% CAGR for the FY 2024-2028 time frame based on S&P Capital IQ's consensus data. In my view, the expectations of a low-teens percentage dividend CAGR for Panasonic going forward are realistic, taking into account the company's intention and ability to increase dividend payouts in the future.
I have already highlighted above that Panasonic's capital allocation strategy includes plans to pay regular dividends to its shareholders. Also, as indicated in its recent Q2 supplemental financial data disclosure, Panasonic is guiding for a +12% growth in its operating cash flow for full-year FY 2024, and it expects to achieve at least a +10% increase in operating cash flow in FY 2025.
The sell-side analysts' consensus dividend forecasts (source: S&P Capital IQ) for Panasonic imply that the stock offers decent forward dividend yields of 2.4%, 2.8%, and 3.1% for FY 2024, FY 2025, and FY 2026, respectively. As such, PCRFY is an attractive investment choice for investors who are seeking both growth (a play on AI and EVs as detailed in my July 2023 write-up) and (dividend) income.
Business Portfolio Restructuring Opportunities
PCRFY provided an update on the company's business portfolio review process at its most recent second-quarter results briefing.
Panasonic disclosed at its Q2 results call that the holding company's CEO, CFO, and Chief Strategy Officer meet with the key decision makers at the respective operating businesses once per month at the minimum to talk about financial prospects and restructuring opportunities.
It is worthy of note that Panasonic noted at the company's second-quarter earnings briefing that "there are various possibilities that we are discussing right now so that we can decide on the direction" of the operating businesses. PCRFY also highlighted that "we will be disclosing information as soon as we make a decision."
It is possible to infer from Panasonic's management commentary that the company is actively looking at different portfolio restructuring and asset monetization options. As an example, Panasonic announced earlier in the end of September this year that it is "consolidating the global headquarters functions" of "its Refrigeration Compressor Business Unit in Singapore to Japan as part of our long-term business strategic review of the portfolio."
As per S&P Capital IQ's valuation data, the market currently values Panasonic at a trailing twelve months' P/B multiple of 0.77 times which implies a 23% discount to book value. It is likely that Panasonic's valuation multiple can expand as the company completes more value-accretive portfolio optimization moves in the months and years ahead.
Concluding Thoughts
PCRFY's stock is still rated as a Buy. I have a positive opinion of the company's dividend growth prospects and its portfolio restructuring potential.
For further details see:
Panasonic: Positive On Shareholder Return And Portfolio Restructuring