Rising Sun Management, investment advisor for Nippon Active Value Fund [LON:NAVF], the London-listed investment trust, has sent a letter to the management of Intage Holdings [TYO:4326], a Japanese marketing research firm, to notify it of several proposals that will be made at Intage’s forthcoming Annual General Meeting.
Last week The Armchair Trader spoke to Rising Sun’s chair, Paul ffolkes Davis, about Nippon Active Value’s activist approach to holdings in Japanese small- and mid-cap companies. You can listen to the podcast here.
Ffolkes Davis listed the proposals in a letter to Noriaki Ishizuka, president of Intage Holdings. Rising Sun informed Ishizuka that the company should replace its current point-based compensation trust-type stock incentive scheme with a proper restricted shares programme in line with METI Incentive Guidance.
Share buyback and dividend policy
Rising Sun also gave notice to Intage that the company should make a clear commitment to a meaningful share buyback and greatly increase dividends.
Ffolkes Davis expressed disappointment that a friendly management buy-out proposed in February 2022 was rejected by Intage’s board. Rising Sun also cast aspersions on Intage’s position that corporate value and the interests of shareholders could only be secured and enhanced by its growth strategy as a listed company, an issue that Rising Sun intends to engage with Intage’s management with.
Nippon Active Value Fund is actively increasing its holdings in Intage and together with Earl 1927 LLC and Michael 1925 LLC have created an investor group that holds 4.1 million common shares in Intage, making the group the largest shareholder with a 10.7% stake in the market research company.
Slow progress
In the past, Rising Sun has highlighted several areas of concern with how Intage is managed. They include a lack of widely held stock incentives for management and employees; an unsuitably expansionist acquisition policy lacking sufficient financial returns, and; slow progress in digitising operations and low levels of automation in the business generally.
Together, the investor group is acting as an activist investor drawing on the Rising Sun’s significant Japanese market knowledge and their two decades of successful engagement to generate uncorrelated returns.
Many Japanese companies are under-researched, show rising balance sheet cash reserves and have questionable capital allocation policies.
