SoftBank Group is Undervalued

Heavily leveraged balance sheet may deter conservative investors

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(SoftBank Vision Fund and Delta Fund-1, Presentation)

Share price SoftBank Group, an $89.2 billion investment holding company led by the 83rd richest man-Masayoshi Son, has fallen 12% from its peak since November.

The 36-year-old SoftBank Group owns significant stakes if not entire companies: Sprint, Yahoo Japan, Arm, Fortress, among other investments.

In January 2018, the company also recently invested $3.7 billion in Xiaoju Kuaizhi Inc. (DiDi), $7.7 billion in Uber Technologies Inc. SoftBank also has a sizable stake in Alibaba.

SoftBank also created its $100 billion Vision Fund in 2017 and about $32.5 billion of which is funded by the company itself as of December.

This week, SoftBank just reported its recent nine months operations that ended in December 2017. The Son-led entity delivered 3.5% rise in revenue and 20% increase in profits.

The company also carried ¥15.8 trillion in debt (2.9x debt-equity) and a book value of ¥5.5 trillion in the period.

In the past three years, SoftBank raised ¥4.1 trillion in financing activities and had free cash outflow of ¥86 billion.

Analysts have an estimated price target of $57.36 per ADR share (vs. $40.29 at the time of writing).

Meanwhile, conservative valuations indicated a per share figure of ¥13,848.82 (vs. ¥8,808 at the time of writing). This would indicate a possible 56% upside from today’s ADR price and a target of $62.77.

Ignoring the heavy debt figures and wanting to risk capital to have some exposure in some of the world’s rising tech companies, SoftBank may be a worthwhile risk.

Disclosure: No shares in any companies mentioned.

 

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