Japan’s SoftBank Group is anticipated to report a modest first-quarter profit on Wednesday
However, investors are focused on whether the tech investment giant will either declare a significant share buyback or indicate its readiness to engage in one.
The results are amidst significant market volatility, notably for large-cap Japanese stocks and major tech companies, of which SoftBank is a part. These sectors have been impacted by a significant unwinding of yen carry trades and concerns about a potential U.S. recession. On Monday, its shares experienced a nearly 20% decline; however, they had recovered nearly half of those losses by Tuesday afternoon.
This year, SoftBank CEO Masayoshi Son has encountered a resurgence in investor pressure to repurchase shares. This is due to the fact that the company’s market capitalization is currently trading at a substantial discount to the combined value of its assets, a discount that is expected to increase.
The discount is estimated by the majority of analysts to be approximately 60%, as opposed to 53% at the end of March and 36% as of the end of June 2023.
In June, a source familiar with the matter stated that Elliott Management, an activist investor, has advocated for a $15 billion share buyback program following the restoration of a stake valued at over $2 billion.
Several analysts have since echoed that call, with some observing that the market turmoil of this week has likely resulted in an even wider gap between SoftBank’s market value and its net asset value, thereby increasing the rationale for a large buyback.
They also observe that SoftBank had $26 billion in cash on hand as of the end of March.
Rolf Bulk of New Street Research believes that SoftBank should initiate a buyback program valued at over $10 billion, stating, “We believe they are in a very comfortable situation with the balance sheet.”
According to an average of five analyst estimates compiled by LSEG and Reuters, SoftBank’s net profit in April-June was likely 109 billion yen ($748 million). This would be the third consecutive quarter of profitability, in contrast to a loss of 316.2 billion yen during the same period in the previous year.
The investment behemoth, whose largest holding is its 90% stake in chip designer Arm, has been cautiously reestablishing its finances in the wake of the collapse of high-flying office-sharing startup WeWork and the unpopularity of SoftBank’s portfolio of tech firms in its two Vision Funds in a high-interest rate environment.
Each of the previous two fiscal years encompassed investments of approximately $4 billion.
In July, SoftBank acquired British artificial intelligence chipmaker Graphcore for an undisclosed sum and led a $1 billion funding round in British self-driving car startup Wayve.
In April, it invested $200 million in Tempus AI, a precision medicine startup that operates through artificial intelligence. The startup was subsequently listed on the Nasdaq in June. The same month, SoftBank and Tempus announced a joint venture that would be based in Japan.
$1 is equivalent to 145.67 yen.
