Why Sony re­quires more than a big share buy­back

Business Standard - - COMPANIES - ROBYN MAK

Sony’s block­buster share buy­back misses the big­ger pic­ture at the com­pany. Ja­pan’s $55-bil­lion elec­tron­ics gi­ant said on Fri­day that it will re­pur­chase 100 bil­lion yen, or about $911 mil­lion, worth of stock.

Com­ing just days af­ter the com­pany re­ported dis­ap­point­ing earn­ings, that’s a sign of con­fi­dence from its chief ex­ec­u­tive Kenichiro Yoshida.

To boost long-term re­turns, though, he needs to con­vince in­vestors that a much needed deeper over­haul of the con­glom­er­ate is also un­der­way.

The buy­back will be Sony’s largest ever. Just last week, the com­pany an­nounced a worse-than-ex­pected fall in op­er­at­ing profit from its PlayS­ta­tion con­sole di­vi­sion, which is its cash cow busi­ness. That helped wipe $9 bil­lion off the com­pany’s mar­ket value in the days that fol­lowed. The lat­est move is al­ready cush­ion­ing that blow — by late morn­ing in Tokyo on Fri­day, Sony’s shares were up by as much as 5 per cent.

That should boost Yoshida’s stand­ing with share­hold­ers. Since tak­ing over last April, the chief ex­ec­u­tive has presided over an 8 per cent loss in share price as of Fe­bru­ary 7, which is largely in line with Tokyo’s bench­mark Topix in­dex.

The re­pur­chase plan also shows that Sony’s bal­ance sheet is stronger than it has been in re­cent years. Net cash, ex­clud­ing the group’s fi­nan­cial ser­vices busi­ness, stood at 445 bil­lion yen, or about $4 bil­lion, as of De­cem­ber, up from 177 bil­lion yen a year ear­lier.

But the stock trades at roughly 11 times for­ward earn­ings — well be­low both its own two-year aver­age and the 14 times mul­ti­ple of its video-games ri­val Nin­tendo, ac­cord­ing to Refini­tiv data.

An un­ruly con­glom­er­ate sprawl is to blame. Be­sides video games, mu­sic and movies, Sony also houses a cap­i­tal­in­ten­sive semi­con­duc­tors unit as well as a loss-mak­ing smart­phones busi­ness. Un­lock­ing value will re­quire bolder steps, like spin­ning off its chip-mak­ing unit or ex­it­ing the smart­phones busi­ness. A share bo­nanza, though wel­come, will only go so far.

PHOTO: REUTERS

Kenichiro Yoshida, chief ex­ec­u­tive of­fi­cer of Sony

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