Shares I love: Bengo4.com

On the ground in Japan, we see several structural trends that we identified as long-term resilient sources of return for Japanese companies. Some of the trends are accelerating in 2020 due to the situation around Covid-19, especially in the area of automation and information technology. These trends provide many interesting investment opportunities for bottom-up investors like us.

Although Japan is very advanced in some areas, it lags in others, sometimes surprisingly so. Office digitalisation is a prime example of this. In many Japanese companies’ offices, IT systems are old, and paper-based office work is still common. Japan is, however, following exactly the same pattern as countries like the United Kingdom, and the changes are accelerating due to the situation caused by Covid-19.

One of several names we like on the office digitalisation theme is Bengo4.com (JP:6027), which offers Cloudsign, a cloud-based service for digital contracts, which is equivalent to the service offered by DocuSign. Bengo4.com is the pioneer and market leader in Japan with about 80 per cent market share in terms of the number of registered companies.

Japanese companies have long maintained ‘Hanko’ culture in their business practice. Hanko is a small stamp used much in the same way as an officially recognised signature on official documents and paperwork and has a history of more than 1,000 years in Japan. This Hanko culture is one of the largest bottle necks in working from home in Japan, but this is changing and accelerating due to Covid-19.

We believe that the digital contract market in Japan has huge growth potential; we forecast that the total addressable market of digital contracts could be Y400bn over the long term, and the growth runway should be very long, at least the next five to 10 years. We see a number of big investment opportunities arising from Japanese business customs changes accelerated by Covid-19.