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For the second quarter in a row, Pasona was a detractor, reducing returns by 121bps. Its -22% share price performance suffered from a -30% fall in Benefit One’s share price, with the discount narrowing slightly from 67% to 66%. Pasona has been the largest detractor in 2022 driven by a -63% fall in the share price of Benefit One, which accounts for 189% of Pasona’s market cap. Although we had concerns over Benefit One’s valuation, and had been reducing our position in Pasona accordingly, the magnitude of the share price fall is astounding, and Benefit One no longer seems overvalued. Benefit One has 11.3m captive members on its platform, about 19% of the 60m employed workers in Japan, providing stable cashflows and an opportunity to sell additional services. With Pasona’s 66% discount coupled with an appealing Benefit One valuation, we are excited by Pasona’s potential upside

The second largest detractor was Pasona whose share price fell -15.9% and detracted 85bps from performance. Pasona has been the largest detractor in 2022 driven by a tremendous -59% fall in the share price of Benefit One, which fell -23% in April alone and accounts for 187% of Pasona’s market cap. Although we had concerns over Benefit One’s valuation, and had been reducing our position in Pasona accordingly, the magnitude of the share price fall is astounding, and it no longer seems overvalued. Benefit One has 11.3m captive members on its platform, about 19% of the 60m employed workers in Japan, providing stable cashflows and an opportunity to sell additional services. With Pasona’s 67% discount coupled with an appealing Benefit One valuation we are sanguine about Pasona’s potential upside.

Pasona was the largest detractor over the quarter, reducing returns by 179bps. Its -25% share price performance was aided by a 6% narrowing of the discount from 73% to 68% but suffered from a -48% fall in Benefit One’s share price. Over the quarter, Pasona reported respectable earnings, seeing profits of its unlisted businesses grow +84% YoY and increase by almost twofold versus the same quarter pre-COVID. Pasona has benefited from increased demand for outsourced services and a more fluid labour market. Although Pasona’s unlisted businesses are still underachieving their full potential, their performance has markedly improved over the past two years. While we had hoped this would have raised the market’s awareness of Pasona’s value, Pasona’s discount has remained stubbornly wide, averaging 75% over the past year.

In January, Pasona announced its intention to IPO Circlace, a 43%-owned DX consulting firm, and at the start of March, IPO’d its wholly-owned subsidiary, Bewith, a business process outsourcing company. Bewith accounts for 12% of Pasona’s market cap, and including the value of shares sold by Pasona into the IPO, 18%. It is encouraging to see Pasona taking proactive steps to realise the value in its portfolio and allow its underlying businesses to flourish on their own. We expect as the transparency on Pasona’s businesses improves and it continues to grow earnings, we will see a further narrowing of the discount.

Pasona was the largest detractor. Its -24% share price performance was driven by a -30% fall in Benefit One’s share price, aided by a slight 1% narrowing of the discount from 73% to 72%. Over the month, Pasona reported respectable earnings, seeing profits of its unlisted businesses grow +84% YoY and increasing by almost twofold versus the same quarter pre-COVID. Pasona has benefited from increased demand for outsourced services and a more fluid labour market. Although Pasona’s unlisted businesses are still underachieving their full potential, their performance has markedly improved over the past two years. While we had hoped this would have raised the market’s awareness of Pasona’s value, Pasona’s discount has remained stubbornly wide, averaging 76% over the past year.

In January, Pasona announced its intention to IPO Circlace, a 43%-owned DX consulting firm, and received approval from the Tokyo Stock Exchange to IPO its wholly-owned subsidiary, Bewith. Financial information on Circlace is scant, but Bewith could account for 25% of Pasona’s market cap at the indicative IPO price. We think both announcements contributed to the slight narrowing of Pasona’s discount over the month, and expect it could narrow further as and when the IPOs progress.

Pasona was the second largest contributor with a share price return of +11.7% adding 117bps to performance. Pasona’s performance came despite a -7.5% fall in the share price of Benefit One. Pasona owns 50% of Benefit One, and it accounts for almost 80% of our estimate of Pasona’s intrinsic value and 290% of its market cap. The divergence in share prices led to a narrowing of Pasona’s discount from 79% to 73%. Although Pasona reported results in October we think investors are only just starting to recognise Pasona’s undervaluation and the quality of its unlisted businesses. Pasona is in the process of listing one of these, a business process outsourcing company called BeWith. We estimate that it could be worth 20% of Pasona’s market cap. If the success of Benefit One, which was also a wholly-owned subsidiary of Pasona and whose share price has compounded annually at +59% over the past 10 years, is anything to go by, the IPO could be a strong catalyst for further value creation.

Pasona was the largest contributor adding 261bps to returns followed by Daibiru adding 111bps.

Pasona’s +47% share price return over the quarter was driven by Pasona’s 50% stake in Benefit One, which appreciated by +51%, and accounts for 323% of Pasona’s market cap. While Benefit One’s share price outperformed Pasona’s, Pasona’s discount narrowed from 79% to 77%, as we marked down the valuation of Pasona’s unlisted businesses due to falling peer multiples.

Pasona’s share price rose +20%, driven in the main by a +23% share price gain from Benefit One, in which it owns a 50% stake and accounts for a remarkable 320% of Pasona’s market cap. While the market is understandably focused on Benefit One’s performance, we believe that the improved profitability of Pasona’s core business (HR-related services) is being overlooked: indeed, it recently reported its highest-ever operating profits, helping to dispel arguments that Pasona’s core business would be permanently lossmaking. Currently, Pasona trades on a -77% discount to NAV, reflecting in part this perception. To highlight the magnitude of the discount, if it were to close to zero – an event we admittedly regard as unlikely – we could stand to make a return of +335% from discount contraction. The potential for NAV growth and a tightening of the discount to less extreme levels holds out the prospect for very attractive returns from here.

Pasona was the most significant contributor over the month, adding 117bps to performance with an increase in share price of +20%. The main driver was a +23% share price return from its 50% stake in Benefit One, which accounts for 320% of Pasona’s market cap. Investors are heavily focused on Pasona’s stake in Benefit One, but we think they are overlooking the improved profitability of Pasona’s core businesses – which reported their highest ever operating profits. Pasona trades on a 77% discount to our estimated fair value. As an illustration of the scale of the undervaluation, we’d stand to gain +22% if the discount narrowed just 5% and, although unlikely, +335% were the discount to be eliminated. Needless to say, the upside is stacked in our favour.

Being the largest contributor last quarter, Pasona takes the wooden spoon for the largest detractor this quarter. It detracted 94bps from GBP performance, with its share price falling by -10% in Yen. This was driven by a widening of its discount from 76% to 78% and -4% fall in Benefit One’s share price, which accounts for 310% of Pasona’s market cap and, by our estimates, 69% of its fundamental value. Over the quarter Pasona reported strong results, with profits increasing by 51% YoY buoyed by the highest Q2 operating margin for its unlisted businesses since 2008. Unfortunately, Pasona only revised up forecasts for the year by +50%, despite profits for the first half increasing by 177%, which investors did not take well. We believe the forecasts are excessively conservative and expect that Pasona will exceed them, boding well for future share price performance

Pasona reported strong results, with profits increasing by 51% YoY buoyed by the highest Q2 operating margin for its unlisted businesses since 2008. Profit forecasts for the year were revised up +50%, admittedly from a low base, but to what we believe to still be excessively conservative levels. Share price weakness in its listed subsidiary, Benefit One, whose price fell -3%, only partially explains Pasona’s -9% price fall, with Pasona’s discount widening to 77%. Towards the end of the month the FSA held a meeting to discuss the upcoming revisions to the Corporate Governance Code. The key points discussed were parent-subsidiary listings, cross-shareholdings and capital efficiency. We were especially pleased with the level of criticism on listed subsidiaries, which we think will lead to a further unwinding. At the end of the month, we were invested in seven listed subsidiaries accounting for 24% of our portfolio. As has been a core tenet of our thesis, regulatory pressure is building on companies to improve their governance. Whether that be more independent board representation, improved disclosure, or better capital allocation, the direction of travel is clear, providing a tailwind to our performance as the remarkably low valuation of our portfolio – at just 4.1x EV/EBIT – becomes harder to justify.

Pasona was the largest contributor this quarter, adding 140bps to performance. Its +30% share price return benefitted from a +15% share price increase from its 50% stake in Benefit One and a more optimistic outlook on its core recruiting and BPO business, which reported its highest ever quarterly profit. However, the stellar performance of Pasona’s core businesses was not fully reflected in Pasona’s share price, and our estimated discount that Pasona trades to its fair value widened from 73% to 76%. We believe Pasona’s valuation became more compelling which is why, despite the strong performance, it ended the period as our 2^nd largest position.

Pasona was the strongest performer over November, up +13%, driven by a +30% share price increase in Benefit One, which accounts for
71% of Pasona’s net asset value. In this respect, although strong, Pasona’s share price was disappointing, with its discount widening from
77% to 80% which offers an enormous upside potential.

At the time of writing, 71% of our NAV had reported results. While we, and the market, had expected a recovery, the
quantum of the V-shaped bounce exceeded expectations. Compared to the COVID-impacted first quarter, profits were up
+83%, and even excluding the remarkable performance from Pasona (which reported its highest ever quarterly profit),
bounced +58%.