Osaka Gas (TSE:9532) Issues 2056 Bonds On A Stock Price That Still Looks Pricey

Osaka Gas (TSE:9532) has moved to raise fresh capital through a new subordinated, unsecured bond issuance, offering ¥10 billion in fixed-income securities that mature in September 2056, representing a long-dated commitment to debt investors.

Recent trading has been supportive for Osaka Gas, with a 30-day share price return of 9.41% and a year to date share price gain of 8.97% at a closing price of ¥5,928. That sits alongside a 1-year total shareholder return of 39.77% and a very strong 3-year total shareholder return of 163.06%. This suggests momentum has been building over time as investors respond to capital moves such as this long dated subordinated bond and broader earnings and balance sheet developments.

Scan other utilities showing similar momentum and balance sheet moves by checking our curated list of 47 resilient stocks with low risk scores in addition to Osaka Gas.

Osaka Gas has just tapped bond markets with a long dated issue, yet the share price still trades below the average analyst target and a different intrinsic estimate. Where does a fair middle ground actually sit?

Price-to-Earnings of 16.1x: Is it justified?

On a P/E of 16.1x, Osaka Gas trades at a higher earnings multiple than the broader Asian gas utilities group on 13.8x, and above an estimated fair P/E of 11.8x. This points to a richer valuation relative to both peers and the regression based fair ratio.

The P/E ratio compares the share price to earnings per share, and it effectively tells you how much investors are willing to pay for each unit of profit. For a regulated utility such as Osaka Gas, this gauge is often used as a shorthand for how the market is weighing earnings quality, growth expectations and perceived stability.

Management is delivering high quality earnings and has grown profits by 13.7% per year over the past 5 years, and earnings are forecast to keep rising, although at a modest 3.8% per year pace that is slower than the wider JP market. That combination can help explain why investors are prepared to pay more per yen of profit than the Asian gas utilities average, even though the firm is also being assessed as expensive against the estimated fair P/E of 11.8x. The multiple could move toward that level if sentiment cools.

Against the Asian gas utilities group on 13.8x, the current 16.1x P/E implies investors are attaching a premium to Osaka Gas compared with regional peers. When cross checked against the fair ratio of 11.8x, that premium stretches further, reinforcing the idea that the stock is trading on a full earnings multiple rather than a discounted one.

For investors who want to understand how this fair ratio is constructed and tracked over time, the SWS framework provides a structured way to compare Osaka Gas against similar businesses through the Explore the SWS fair ratio for Osaka Gas.

Result: Price-to-Earnings of 16.1x (OVERVALUED)

Still, Osaka Gas faces clear pressure points if regulated returns tighten, or if planned overseas and Life & Business Solutions projects fail to earn their keep.

Find out about the key risks to this Osaka Gas narrative.

Another View on Osaka Gas using cash flows

Osaka Gas looks expensive on earnings multiples, yet the SWS DCF model paints an even tougher picture. At ¥5,928, the share price sits well above an estimated future cash flow value of ¥2,764.42. This frames the stock as overvalued on this second lens and raises the question of which yardstick you trust more.

For readers who want to see how this cash flow view is built and stress tested over different assumptions, the detailed SWS model is set out in the Look into how the SWS DCF model arrives at its fair value..

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Osaka Gas for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 23 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With Osaka Gas priced richly on both earnings and cash flow views, do you see conviction or complacency setting the tone here? If you want to weigh those tensions against what the crowd is excited about, start by checking the 2 key rewards.

Looking for more investment ideas beyond Osaka Gas?

Osaka Gas offers one lens on listed utilities, but your portfolio decisions may benefit from comparing it with other businesses that fit different return profiles.

• Target resilient balance sheets and steady fundamentals by scanning our curated list of solid balance sheet and fundamentals (19 results) that filter for financial strength and durability.
• Hunt for potential mispricings by reviewing the 74 high quality undiscovered gems before other investors start paying closer attention.
• Build a more dependable income stream by assessing the 18 dividend fortresses that focus on higher yielding, established payouts.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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