‘SoftBank trading at ridiculous 40pc discount’

TOKYO: Chris Lane thinks investors haven’t quite gotten their heads around what Masayoshi Son is trying to do at SoftBank Group Corp.

The Sanford C. Bernstein analyst just initiated coverage of the Japanese company with an “outperform” rating and a forecast that shares could rally 36 per cent over the next year.

Investors still see SoftBank as primarily a telecommunications company, he says, even though its core business is investing in technology.

There are similarities to Berkshire Hathaway Inc, the United States company led by Warren Buffett, he explains.

While Berkshire uses cash from its insurance business to invest in railroads, ice cream shops and Coca-Cola, SoftBank taps cash from its telecoms operations to back startups in ride-hailing, artificial intelligence, e-commerce and robots.

Yet SoftBank trades at a discount of more than 40 per cent to the assets it owns, while Berkshire has little or no such markdown.

“The discount is ridiculous,” said Lane. “What’s unusual about SoftBank is that there’s a 40 per cent discount across the group.”

Conglomerates tend to trade at lower values than their individual assets, but SoftBank’s is particularly deep.

Lane contends that businesses it controls completely, like the Japanese telecom operations, shouldn’t be valued lower than their market value.

He estimates the sum of SoftBank’s parts have an enterprise value of 31.7 trillion yen (RM1.18 trillion), or 18.3 trillion yen after subtracting debt. Its market cap is about 11 trillion yen.

SoftBank has backing from most analysts. Of the 24 covering the company, 22 have “buy” ratings, according to data compiled by Bloomberg. Two analysts have “hold” ratings, and none recommend selling the shares.