Tamron (TYO:7740) - Fundamental Investment Case

Out of the wreckage of the shrinking global D-SLR market has emerged a winner in the form of mirrorless cameras. Smaller & lighter than D-SLRs, with superior video quality, the main historic downside, ironically, has been the lack of accompanying accessories, including lenses.

Into the breach has stepped Tamron, whose high margin Private Brand mirrorless lenses propelled an upward revision to 1H earnings, even though the company has juggled its divisional forecasts to ensure a FY 12/19 revision is not yet necessary.

Not only have high margin mirrorless lens PB sales been above plan with an expanding order backlog, but Tamron also finds itself in calmer competitive territory, with few firms capable of matching its mirrorless lens product suite.

We expect margins to improve in the medium term as Tamron continues to capitalise on previous R&D investment. We also anticipate ongoing average lens price rises as new lens models are released & market share gains of mirrorless over D-SLR cameras persist.

We are similarly encouraged by developments in the Commercial / Industrial-Use Optics division, where surveillance, FA & ADAS 1H lens sales were notably strong & the introduction of a 2H cost increase looks either conservative or disingenuous or both.

On 12x 12/21 earnings & a 9% FCF yield, ahead of continued earnings expansion & margin improvement, we conclude the stock is undervalued & initiate with a Positive rating.