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Softbank Group shares target raised on buyback and NAV discount

EditorBrando Bricchi
Published 06/06/2024, 03:54 PM

On Thursday, Softbank (OTC:SFTBY) Group Corp. (9984:JP) (OTC: SFTBY) received a boost from Jefferies as the firm increased the price target for the company's shares to JPY 12,910 from JPY 11,460 while maintaining a Buy rating. The adjustment comes amid the analyst's observation that Softbank is trading at a significant discount to its net asset value (NAV) per share, which is estimated at JPY 19,600.

The analyst noted Softbank's low loan-to-value (LTV) ratio, which is currently around 8%, suggesting that the company has the capacity to borrow approximately $35 billion before its LTV reaches 25%. Additionally, Softbank has about $15 billion in non-core assets, including stakes in T-Mobile US (NASDAQ:TMUS) and Deutsche Telekom (OTC:DTEGY) (DT).

Elliott Management, an activist investor, has reportedly rebuilt its position in Softbank and is advocating for a $15 billion share buyback program. Jefferies pointed out that while Softbank recognizes that past buybacks have only provided temporary relief to its share price, a planned $30-40 billion buyback over the next 3-4 years, coupled with the partial monetization of ARM Holdings (LON:ARM), could sustainably reduce the discount on the company's NAV.

Softbank's potential to leverage its low LTV and non-core assets for a substantial buyback program appears to be a key factor in the firm's positive outlook. The strategic financial moves could play a significant role in narrowing the gap between the company's trading price and its net asset value.

In other recent news, SoftBank (TYO:9984) Group Corp has reported a strong fiscal year-end, highlighted by the successful IPO of its subsidiary, Arm, and a strategic shift towards an AI-centric portfolio. The IPO of Arm significantly boosted SoftBank's net asset value, with Arm's share price jumping to $125 from a starting point of $51.

SoftBank also noted a record low loan-to-value ratio of 8.4% and a substantial cash position of about JPY4.7 trillion. The company's Vision Fund 1 demonstrated steady growth, while Vision Fund 2, despite currently being under its investment cost, holds promise for future growth.

These recent developments indicate a robust financial standing for SoftBank, with the company's CFO, Yoshimitsu Goto, emphasizing the IPO's substantial contribution to the company's assets. Additionally, SoftBank's strategic focus on AI and strategic investments in various sectors, coupled with disciplined financial management, underscore its commitment to future growth.

However, the company acknowledges the need to mitigate China-centric risk and address regional competition. Despite these challenges, SoftBank remains positioned for growth, leveraging AI and strategic investments to navigate the dynamic tech landscape.

InvestingPro Insights

In light of the recent price target upgrade by Jefferies for Softbank Group Corp. (OTC: SFTBY), real-time data from InvestingPro provides additional context to the company's financial position. With a market capitalization of $89.89 billion and a price to book ratio of 1.25 as of the last twelve months, Softbank's valuation metrics offer a mixed picture. The company's significant debt burden is reflected in its negative P/E ratio of -55.88, indicating challenges in profitability. However, an InvestingPro Tip highlights that Softbank is expected to see net income growth this year, which may contribute to a more favorable earnings outlook.

Investors may also be encouraged by the company's recent performance, with a strong return over the last week of 11.27% and a notable six-month price total return of 61.29%. Additionally, Softbank's position as a prominent player in the Wireless Telecommunication Services industry could further bolster investor confidence. For those looking to explore deeper insights, InvestingPro offers additional tips on Softbank, and users can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

Overall, the combination of expected income growth and recent positive price momentum could suggest that Softbank's strategic initiatives, such as the potential share buyback program, may be well-received by the market. For a comprehensive analysis, investors can review the total of 13 InvestingPro Tips available on the platform, which provide a detailed perspective on the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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