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Sohn: Jay Kahn picks Bengo4

Jemima Whyte
Dec 3, 2021

Jay Kahn’s Flight Deck fund seeks out stocks in “roads least travelled”, and Kahn reckons it has unearthed a “multi-bagger”: Bengo4, which he describes as Japan’s DocuSign.

Until COVID-19 hit, Japan’s banking and government documents needed a traditional hanko stamp, and electronic signatures weren’t used.

In April, the government relaxed regulations and Kahn sees an opportunity. It’s still very early days. Kahn estimates the total addressable market [TAM] could be $US3.2 billion ($4.5 billion) if every company used electronic signatures. Now, it’s probably closer to $US90 million. Based on penetration rates and GDP comparisons between Japan and the US, that number could grow to between $US536 million and $US698 million. That’s five to six times growth.

“We think we are very much in the early stages of a J-curve penetration in terms of the rapid adoption of e-signature in Japan over time,” he says.

Bengo4’s business is called CloudSign, and the company also has an ex-growth, highly cash generative legacy business which connects lawyers with consumers who need advice. Kahn says that legacy business limits the downside.

But the real excitment is CloudSign, which has more than 40 per cent of the nascent market with 9800 companies.

“It is winner takes most,” he says of the e-signature market. “It’s a two-sided market that requires the sender and recipient to use similar software.”

Bengo4 is trading at about 20 times revenue, though if you pro-forma its CloudSign business it looks even cheaper – entering at 0.3 times revenue.

Kahn thinks CloudSign can grow its customers by four times and it will only have penetrated 5.5 per cent of Japan’s companies with more than 10 employees. Assuming no multiple expansion, it assumes a double or 99 per cent upside by 2024.

In its reward case, if penetration goes to 6.3 per cent and you apply slight multiple accretion, it could be more than a three bagger.

This article was originally posted by The AFR here.

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