SoftBank seen posting modest profit in Q1, buyback potential in focus

By Anton Bridge

TOKYO (Reuters) – Japan’s SoftBank (TYO:) Group is expected to report a modest first-quarter profit on Wednesday but investors are set to hone in on whether the tech investment giant will either announce a major share buyback or flag its willingness to embark on one.

The results come amid much market turmoil, particularly for large-cap Japanese stocks and major tech companies – of which SoftBank is both – hurt by a massive unwinding of yen carry trades and U.S. recession fears. Its shares slumped almost 20% on Monday but regained nearly half those losses as of Tuesday afternoon.

SoftBank CEO Masayoshi Son has faced renewed investor clamour this year for the company to buy back shares given that its market capitalisation trades at a large discount to the combined value of its assets – a discount that continues to grow.

Most analysts estimate the discount at around 60% compared to 53% at end-March and 36% as of end-June 2023.

In particular, activist investor Elliott Management has called for a $15 billion share buyback programme after rebuilding a stake worth more than $2 billion, a person familiar with the matter said in June.

Several analysts have since echoed that call, with some noting that this week’s market turmoil has likely resulted in an even wider gap between SoftBank’s market value and its net asset value, increasing the rationale for a large buyback.

They also note SoftBank had $26 billion of cash on hand as of end-March.

“We think they’re in a very comfortable situation with the balance sheet,” said Rolf Bulk of New Street Research, who believes SoftBank should embark on a buyback programme worth more than $10 billion.

SoftBank’s net profit likely came in at 109 billion yen ($748 million) in April-June, according to an average of five analyst estimates collated by LSEG and Reuters. That would mark its third quarter in a row of profit and compares to a loss of 316.2 billion yen in the same period a year prior.

The investment behemoth, whose biggest holding is its 90% stake in chip designer Arm, has been cautiously rebuilding its finances after the failure of high-flying office-sharing startup WeWork and SoftBank’s portfolio of tech firms in its two Vision Funds fell out of favour in a high-interest rate environment.

It only invested some $4 billion in each of the last two financial years.

More recently, SoftBank led a $1 billion funding round in British self-driving car startup Wayve and bought British artificial intelligence chipmaker Graphcore for an undisclosed sum in July.

It invested $200 million in Tempus AI, which works in artificial intelligence-enabled precision medicine, in April before the startup listed on the Nasdaq in June. SoftBank and Tempus announced a Japan-based joint venture the same month.

($1 = 145.67 yen)