World Stock Watch

**Unlocking Value in Sanwa Holdings: A Promising Investment Opportunity**

Sanwa Holdings, a Japan-based company, has caught the attention of ValueAct, a renowned corporate governance investor. With a 5.94% stake in the company, ValueAct aims to provide guidance to management and propose significant changes to maximize shareholder value.

Sanwa Holdings operates in three geographic segments: Japan, North America, and Europe, manufacturing and selling building and commercial facility construction materials, as well as offering maintenance and renovation services. The company boasts a strong market position, with a 50% to 60% market share in Japan and a top-two player status in the U.S. and Europe.

ValueAct has identified three key areas for value creation: U.S. margin expansion, Japan margin expansion, and capital allocation and balance sheet efficiency. By centralizing and consolidating its U.S. operations, Sanwa can increase margins to at least the low-to-mid-twenties. In Japan, the company can improve margins by a few hundred basis points by optimizing its vertically integrated business model.

Additionally, ValueAct will focus on capital allocation and optimizing Sanwa’s balance sheet, which currently holds about 10% of its market capitalization in cash. The firm will likely push for increased shareholder returns in the form of buybacks, given the company’s relatively low valuation.

With ValueAct’s collaborative approach, Sanwa is expected to continue its growth trajectory, having consistently delivered strong sales, profits, and dividends over the past few years. The company’s share price has returned +180% since 2020, outperforming the S&P 500 and Nikkei 225.

ValueAct’s involvement is likely to bring a sense of urgency to Sanwa’s value creation efforts, and the firm’s reputation as a supportive and amicable activist suggests a positive outcome for shareholders. With its expertise in international activism, ValueAct is well-positioned to help Sanwa unlock its full potential and deliver significant returns for investors.