Uncomplicated (2477): Delving into the理念 and notable management reality embedded in its seemingly jokey company name!

The stock we cover today isTempo (2477).

When I first learned about this stock,"What a ridiculous name"I thought. However, because it is not ordinary, sometimes the behind-the-scenes contain the thoughts of the management.

Formerly "Hikaku.com" (Comparison.com). What is the service with the new company name?

Originally"Hikaku.com"was the company name. It is easy to confuse with " Kakaku.com" (2371), but they operated similar comparison sites.

Although the comparison site was completely defeated by Kakaku.com, the company did not end there. In 2007,they acquired the company that sells the "installable lodging reservation site controller 'Tempo!'and expanded this business from there.

Now this has become the main business, and in 2017 they changed to the current corporate name, which is the same as the service name.

A "reservation site controller" is a system that coordinates reservations across multiple booking sites (own site, Rakuten Travel, Jalan, etc.) to prevent overbooking and to avoid opportunities being missed.

For hotels and inns whose reservations have onlineized and can no longer be managed manually,it is indispensable. As foreign tourists visiting Japan rapidly increase, demand for it is growing more and more.

Precisely,in terms of "eliminating hassle" for hotels, the service name and the company name are consistent. This is reflected in the management philosophy as well.

Tempo! aims to reduce people's efforts by connecting with goods and services around the world, and by creating many encounters and times, making society richer.

Tempo! "Management Philosophy"

The "Cash Engine" that silently accumulates money

Among the companies providing reservation site controllers, four to five major players exist domestically. Among them,Tempo has business dealings with almost all major lodging-related companies.

Their performance is excellent, andthey achieved nearly 30% profit growth recently.

What is remarkable is the high operating margin.Operating margin is 65%, an extraordinary figure.

Because the business is providing a system, costs are almost zero, and personnel costs are kept to a minimum.Consolidated employees are only 35, a small-scale operation for a listed company.

Since costs are low and the system sells reliably to both large and small lodging businesses,cash keeps accumulating. Moreover, they have hardly invested in investments.

Investment cash flow for the year ended June 2019 was unexpectedly zero!I was shocked, never seen such a company.

Warren Buffett also likes "a company that can expand with little additional capital" (almost no further funding required). Tempo fits that condition.

In other words, Tempo can be said to be a“cash-making machine” that generates money even when left alone.

Risks and growth potential

As long as lodging reservations online, the business willcontinue to grow. Of course, once introduced, it is a system that you cannot give up, and it willcontinue to generate cash steadily.

Reservation site controllers have entrants from recruiters and Rakuten-related companies.There is no chance to win on funding power, so it is worth watching.

For example, if a more convenient mechanism such asblockchainis created, it could be wiped out in no time.

Also, being a small team has its pros and cons. Costs can be kept low, but there can be turnover,which hurts stability. Above all, management is expected to maintain the quality of human resources.

From an investor's perspective, rather than just accumulating cash,invest in new businesses with an eye on the future. If investment cash flow remains zero forever, it becomes uninteresting.

I would like to assess the company's future along two axes: growth of the existing business and entry into new businesses.

PER is over 30x, but not expensive

The stock price has been rising steadily. With earnings growth, this is natural.

PER is 37x, a high level. However, past levels were around 30x, considering growth, it is not expensive and unlikely to fall.

The business does not seem highly cyclical. In terms of stability, growth, and financials, this company offers promise for the future.

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