Osaka Gas (JP:9532) - Under Review

Gave you a "nice" rating in my first analysis. Looks like I was a little quick on that one.

Situation:

• Osaka Gas seemed to be aligned with shareholders in the past: kept dividend stable; bought back significant amount of shares and retired them
• no share buy-backs in 2011-2012 so far and only marginal increase (1yen) of dividend in 2011, although cash hoard keeps mounting

Proposal:

• significant share buyback, with explicitly communicating an upper limit of price willing to pay (something between 370-390 yen)
• significant increase of dividend by 3-4 yen to around 11-12 yen per share  

 Reason

• implied earning power significantly higher than stated, thus pay-out ratio inadequate (significantly less than the 30% promised)
• implied earnings significantly less volatile than stated, thus no operational need for accumulation of cash
• operational cash-flow more than sufficient to finance maintanance capex as well as capex for business expansion