My bet on Softbank, so far so good – but will it last?

SoftBank Group Corp closed at 4735 JPY on 17/04/2020, up 6.88% from the previous day and showing a very strong and swift recovery from its 2687 JPY low on 19/03/2020. I bought in at 3294 JPY which puts me up 43.75% helping offset some of the losses to my Japanese equities portfolio that has taken a beating throughout the COVID-19 selloff.

sb1

 

In the past couple of months, the stock plummeted rapidly below its 200 Day EMEA, bottomed out at 2609.5 and since then has been making a swift recovery. Below I summarise some of the recent news that has been driving the abrupt movements in the stock:

Feb 12th/13th: the approved sale of Sprint to T-Mobile resulted in the stock surging 14%.

  • Reduce the firm’s debt burden by $40 billion.
  • Greater ability for Masayoshi Son to raise capital for a share buyback
  • Further talks of a second Vision Fund

Mar 23rd: SB to raise $41 billion for share buyback and cut debt

  • 500 billion yen buyback from monetisation of assets (Sprint, Alibaba, Redex Holdings)
  • The move comes following a massive discount of 73% to assets
  • Buyback proceedings to be used to repay debt and increasing cash reserve

Apr 2nd: SB pulls out of the $3 billion tender offer for WeWork

  • As of today 19th April, as I write this post we know that WeWork directors are doing everything that they can to speed up the lawsuit however this is being hindered by the COVID-19 pandemic

Apr 13th: SB announces that it expects to book a loss of $16.7 billion on its $100 billion Vision Fund.

 

Below we can see some of the volatile daily returns for SB in the past quarter.

(SOURCE: https://finance.yahoo.com/quote/9984.T/history?p=9984.T)

sb2

 

Date Close Returns
06/01/2020 4569
07/01/2020 4646 1.671%
08/01/2020 4583 -1.365%
09/01/2020 4797 4.564%
10/01/2020 4878 1.674%
14/01/2020 5049 3.445%
15/01/2020 4979 -1.396%
16/01/2020 4872 -2.172%
17/01/2020 4881 0.185%
20/01/2020 4866 -0.308%
21/01/2020 4875 0.185%
22/01/2020 4884 0.184%
23/01/2020 4769 -2.383%
24/01/2020 4772 0.063%
27/01/2020 4575 -4.216%
28/01/2020 4589 0.306%
29/01/2020 4692 2.220%
30/01/2020 4549 -3.095%
31/01/2020 4524 -0.551%
03/02/2020 4502 -0.487%
04/02/2020 4517 0.333%
05/02/2020 4577 1.320%
06/02/2020 4727 3.225%
07/02/2020 5064 6.887%
10/02/2020 5140 1.490%
12/02/2020 5751 11.232%
13/02/2020 5458 -5.229%
14/02/2020 5517 1.075%
17/02/2020 5540 0.416%
18/02/2020 5269 -5.015%
19/02/2020 5351 1.544%
20/02/2020 5531 3.309%
21/02/2020 5664 2.376%
25/02/2020 5460 -3.668%
26/02/2020 5415 -0.828%
27/02/2020 5239 -3.304%
28/02/2020 5013 -4.410%
02/03/2020 5038 0.497%
03/03/2020 5088 0.988%
04/03/2020 5008 -1.585%
05/03/2020 5092 1.663%
06/03/2020 4783 -6.260%
09/03/2020 4284 -11.018%
10/03/2020 4388 2.399%
11/03/2020 4229 -3.691%
12/03/2020 3964 -6.471%
13/03/2020 3764 -5.177%
16/03/2020 3670 -2.529%
17/03/2020 3643 -0.738%
18/03/2020 3246 -11.538%
19/03/2020 2687 -18.900%
23/03/2020 3187 17.065%
24/03/2020 3791 17.355%
25/03/2020 4170 9.529%
26/03/2020 3778 -9.872%
27/03/2020 3887 2.844%
30/03/2020 3693 -5.120%
31/03/2020 3788 2.540%
01/04/2020 3675 -3.029%
02/04/2020 3768 2.499%
03/04/2020 3732 -0.960%
06/04/2020 4016 7.334%
07/04/2020 4129 2.775%
08/04/2020 4139 0.242%
09/04/2020 4183 1.057%
10/04/2020 4347 3.846%
13/04/2020 4200 -3.440%
14/04/2020 4420 5.106%
15/04/2020 4333 -1.988%
16/04/2020 4430 2.214%
17/04/2020 4735 6.658%

 

Leverage

Investors will continue to monitor company leverage and further asset sales for stock repurchases.

The high leverage has been a concern and has been impacting the company’s borrowing costs (to note that a lot of the debt is held by investors including Saudi Arabia’s wealth fund).

 

March 23rd saw yet another share buyback, this time an announcement of 2 trillion yet which saw the stock price soaring back to 3700-4000 range. Masayoshi Son does not like a deflated stock price and although not of similar magnitude this is a move that has been re-occurring over the years.

 

For: 16 March 2020
Total Assets 39,406,437 Equity 7,703,918
  Interest Debt 17,233,553
  Others 14,468,966
     
Total 39,406,437   39,406,437
Leverage 5.12
1/Leverage 19.55%

 

We can see a deterioration in profit margins, ROA and ROE.

sb3

Softbank’s 2019 Fiscal Year Financial Report

https://group.softbank/system/files/pdf/ir/financials/annual_reports/pdf_01_en.pdf

Continued focus on tech investment, special focus on AI technology, long term vision of investing in growth opportunities and creating value.

 

Overall SB is and will remain an interesting stock for me, however uncertainty will continue impacting portfolio investments as turmoil continues. A lot of corporate value creation (or destruction) will be driven by Masayoshi Son’s Vision Fund and how it performs in the upcoming hostile economic environment. There is a lot of negativity at the moment surrounding this stock. It is also interesting to see activist investor funds such as Elliot Management Corp have started acquiring big stakes in SB, this is also something that I will be closely monitoring.

Analyst ratings for SB remain strong (for SBI Security ratings distributions, there are 8 strong buys and 1 strong buy) and the price target currently stands at 6,807 JPY which indicates a lot of upside value to be unlocked from the current close of 4735.

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