[Stock Analysis] Tepco (9501): Is it Wise to Buy the Company Responsible for the Fukushima Nuclear Meltdown?

To the brink and back - the story of Tokyo Electric Power Company Holdings (TEPCO) is nothing short of dramatic. In March 2011, the world watched in horror as one of the worst nuclear disasters in history unfolded at Fukushima Daiichi nuclear power plant, owned and operated by TEPCO. A 9.0-magnitude earthquake and ensuing tsunami led to the meltdown of three of the plant's six reactors, a disaster exacerbated by gross mismanagement and lackadaisical oversight.

However, after a decade of struggle, cleanup, and restructuring, TEPCO now stands as a severely undervalued entity with some interesting valuation propositions.

Photo taken in Miyako the day after the great Fukushima earthquake

Company Overview

Tokyo Electric Power Company Holdings, Inc. (TEPCO) is the primary electricity provider in Japan, operating through five subsidiaries. It has been pivotal in the nation's power infrastructure since its inception in 1951. Transitioning to a holding company system in 2016, TEPCO emphasizes sustainable energy and nuclear power, with a vision of achieving carbon neutrality. Their commitment extends to reducing CO2 emissions from electricity sold by 50% compared to 2013 levels by 2030.

Despite facing hurdles in the retail electricity segment, TEPCO's Energy Partner dominates the Japanese market, leading in electricity sales. Moreover, the company is actively involved in the decontamination business for nuclear damage, reflecting its continuous commitment towards rectifying past nuclear accidents.

The company's origins trace back to 1883 with Tokyo Dento's establishment. It evolved through several reorganizations, becoming a public-private entity in 1939 before its current incarnation in 1951. Historically, TEPCO is unique among Japanese power companies, given that it does not locate its nuclear power plants within its transmission and distribution area.

TEPCO's tumultuous journey was marked by the Great East Japan Earthquake in 2011, which caused significant damage to its power plants, including nuclear facilities. The accident led to nuclear core meltdowns and radioactive leakage, marking a severe crisis in the company's history. To mitigate this disaster's aftermath, TEPCO took various steps such as a voluntary salary reduction for all executives and employees, leading to a total annual reduction of 20 billion yen.

TEPCO's stockholders include the Nuclear Damage Compensation and Decommissioning Support Agency, which became the company's controlling shareholder in 2012. This was a result of the Agency acquiring significant shares through a 1 trillion-yen investment, making TEPCO essentially semi-nationalized.

Moving towards the future, the company continues to innovate in areas like the Internet of Things for operation monitoring in thermal power generation, in partnership with General Electric. Furthermore, TEPCO's subsidiary, TEPCO Renewable Power, has shown interest in offshore wind power business, indicating the company's stride towards more sustainable energy sources. TEPCO aims to maintain its dominant market position while also playing a crucial role in Japan's journey towards a more sustainable future.

Table of Content

1. Valuation

2. Financial Health

3. Competitive Edge

4. Dividend Yield

5. Conclusion

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1. Valuation

TEPCO's recent performance has been lackluster with its earnings declining at an average annual rate of -50.7% and revenues growing at an average rate of 1.1% per year. The company is presently unprofitable and has not been doing this poorly since the Fukushima Nuclear meltdown disaster.