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Dai Nippon Printing: Elliott’s value swoop relies on greater foil theory

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Thin sheets of aluminium are not just for wrapping sandwiches in. Metal films are also crucial in the production of electric car batteries and smartphone displays. That is why Elliott is targeting Dai Nippon Printing. It is exactly the kind of publicity the little-known Japanese manufacturer needs.

The US activist has previously concentrated on Japanese businesses that were doing badly. Dai Nippon Printing has been flourishing commercially, led by its core electronics unit. Elliott’s latest action suggests it is widening its ambit to include value stocks.

Dai Nippon’s most popular products are fine metal masks. Thinner than paper, they are used in the production of organic light-emitting displays. Sales have soared in parallel with demand for smartphones and next-generation TVs. 

Elliott has an exposure of about 5 per cent worth around $300mn, making it the third-largest external shareholder. It is pushing for the sale of investments, including real estate and shares in other Japanese companies, and aggressive share buybacks.

The electronics unit increased operating income 27 per cent in the year to March last year. Operating margins rose 3.4 percentage points to 22 per cent.

Dai Nippon’s current market value is $6.3bn. An industry multiple of 11 times expected earnings values the electronics unit at $4.1bn. Net cash and investments in listed stocks are worth more than $3.5bn.

The $7.6bn total ignores businesses such as advanced materials, food packaging and consumer products. Battery pouches are one area of rapid growth. These are used as casings for components such as electrodes and separators. Demand for electric cars has galvanised the $700mn market, dominated by Dai Nippon and Resonac, formerly known as Showa Denko. 

Dai Nippon’s shares peaked in 2006. Its enterprise value is less than half of its forward sales, and half that of Resonac.

The company’s products may seem boring. But they are becoming critical to the latest technologies. Even if Elliott cannot chivvy Dai Nippon into radical financial action, it is giving the stock the global marketing exposure it badly needs.

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