No. of Recommendations: 8
I am wondering if there are any Daily Journal interested parties out there willing to share their thoughts on the recent Q2 2025 numbers?
Daily Journal's market cap is $574.8m. Two parts to the value of the company: About 30% Journal Technologies ($167m implied market value) and 70% the concentrated investment portfolio $407m($432m at 31 Mar 2025 less $25m margin loan and ignoring deferred taxes).
Summary of Journal Technology recently published numbers:
Licensing and Maintenance Fees (54% of revenue) up 6% on an annualised basis versus 2024. 20% growth in 2024. 22% in 2023. A little slower, or may be related to customer annual renewal dates.
Other Public Service Fees (26% of revenue) up 49% on an annualised basis versus 2024. 19% growth in 2024. 16% in 2023. A healthy sign.
Combined recurring revenue growth of 17%, a little shy of my 20% hope until 2030.
Consulting Fees (Go live implementation fees) 6 months to 31 Mar 2025 annualised $10.6m (2024: $15.1m, 2023 $19.8m, $11.9m). They might be focused on making things better for existing customers and have a number of legacy technical debt challenges they are working on. Or could just be lumpy and of no significance. Or could be the timing of one large contract.
Investment Portfolio:
Market value at 31 March 2025 $431.5m (30 Sep 2024 $358.7m). Quite an increase. The 13F discloses WFC $101m; BAC $83.4m; BABA $25.8m (could be further HK shares); USB $5m.
Certainly Wells Fargo up 27% and a large part of the portfolio will be part of the reason for the increase.
BABA is up about 14% during that period.
Not disclosed foreign holding: BYD, is up about 43% during that period. I recall someone saying DJCO had sold a lot of BYD (as Berkshire did) but maybe they are still holding it. I don't know.
I also saw someone say they might own Tencent.
Wabuffo tracks that kind of thing but I don't use X these days so don't know if he has commented recently.
In terms of valuation of the DJCO equity portfolio, it is probably below well below the S&P500 PE. US banks low mid teens. BYD mid 20 PE. BABA low mid teens PE. Charlie Munger selected but as the years pass that becomes less relevant maybe.
Questions:
Has the large Australian contract gone live yet? If not, when might that happen? Any issues, as it seems to be going on a long time. There were previous reports in 2019 that it was an $89m project and that go live would be 2021. Either, I am missing some big news story, or the project has been delayed but is about to go live soon, or some other negative.
I would like to know who is managing the equity portfolio and are there any plans to appoint someone? Personally, I would sell half of it now that Munger is gone and the market seems high. Charlie’s idea was that it was better than cash in an inflationary world and China was better than US. He has been wrong about China, so far. He famously used margin debt to compound his mistake. That’s hard to justify, when the company doesn’t need the cash and is not a hedge fund. Equally, Charlie created the money out of thin air, during the great financial crisis, so it's hard to criticise him. Further the current market set up in the US and evolving geopolitical and inflationary risks are not over yet and no one knows the future. In fairness to the new CEO he sold around 10% in 2024 and paid down the margin loan. I don't see how the company would need so much capital to develop Journal Technologies. The business is self funding currently.
If they did sell more of the equities, what would they do with the money becomes the next question, with no easy answers.
Journal Technologies Valuation update:
Total DJCO market cap less 31 Mar 25 portfolio value = $167m.
Recurring revenues 6 months to 31 Mar 25 annualised $44.5m
30% operating margin = $13.4m
Less 21% tax = $10.5m
PE 15.8
(This is valuing the business on a future pro forma basis of expected margins. It takes no account of implementation fee income, which eventually fades away. It takes no account of expected revenue growth, which is expected to get from the current $45m recurring revenue run rate, up to over $114m by 2030, at a 20% growth rate - which would take the JT PE down to 7.5x. But that is only for that element of the DJCO valuation - the 30% noted above.)
Can any of you fill in any of the blanks for me?
