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Will its forthcoming Nikkei inclusion bring changes for SoftBank Corp’s share price?

SoftBank Corp’s [9434.T] share price got off to a good start in 2020, climbing 7% to a peak of JPY1,471.27 on 7 February —the stock’s highest value in 2020 so far.

It didn’t last though, as SoftBank Corp’s share price suffered a bumpy decline, falling 8.5% for the year to 3 April. SoftBank Corp’s share price did recover quickly, closing at JPY1,464 on 30 April and putting the stock 3.4% up on its value at the start of the year.

This was followed by another slump, which saw SoftBank Corp’s share price drop to close at JPY1,319 on 22 May.

Although it took longer this time, SoftBank Corp’s share price recovered once again, reaching JPY1,459.50 on 3 August. SoftBank Corp’s share price then hit its highest peak since its April slump, reaching JPY1,502 on 19 August.

By 16 September, this peak had become another trough that saw SoftBank Corp’s share price fall 3.6% to JPY1,300.50, marking a 52-week low for the stock.

 

 

 

The Nikkei 225’s announcement on 1 September that it would include the stock on its index did give Softbank Corp’s share price a brief lift during this period, with the stock closing 0.8% higher on 2 September.

Given the stock’s continued downtrend, though, can investors expect any long-term changes?

 

The index effect

SoftBank Corp, the mobile phone arm of SoftBank Group [9984.T], will be replacing chemical manufacturer Nippon Kayaku Co. [NPKYY] on the Nikkei 225 index, with the change coming into effect on 1 October. Nikkei announced the change as part of its annual review on 1 September.

The sudden inclusion came as a surprise to some investors, Bloomberg reported.

“It’s rather an unusual name for a replacement. Plus, the parent company SoftBank Group is already in the gauge, and it’s one of the biggest weights within the Nikkei 225. It’s strange that they didn’t consider the parent-subsidiary listing aspect of these two companies,” said Tomoichiro Kubota, a senior market analyst with Matsui Securities.

“It’s rather an unusual name for a replacement. Plus, the parent company SoftBank Group is already in the gauge, and it’s one of the biggest weights within the Nikkei 225. It’s strange that they didn’t consider the parent-subsidiary listing aspect of these two companies” - Tomoichiro Kubota, a senior market analyst with Matsui Securities

 

As it stands, in terms of weighting in the Nikkei 225, SoftBank Group is second only to Fast Retailing Co [9983.T], according to Bloomberg.

As a result of the change, Makoto Kikuchi, CIO at Myojo Asset Management, believes investors will “take opportunistic buys at SoftBank Corp shares in the days leading up to the change”.

However, it’s also worth noting that SoftBank Corp’s parent company, SoftBank Group, also announced it will be selling around a third of its stake in the company by offloading shares worth approximately JPY1.33trn.

This led Kikuchi to say that “the impact on SoftBank Corp shares may be limited due to the share sale by the parent”.

JPY1.33trn

Valuation of shares sold by SoftBank

 

What the analysts think

According to Bloomberg, Brian Freitas, analyst with Pan-Pacific Delta One, expects passive funds to buy 25–26 million of SoftBank Corp’s shares, equal to about 2.2% of its “real world float” or three days’ worth of its average volume.

SoftBank Corp holds a consensus Outperform rating among nine analysts polled by the Financial Times. This consists of a majority of six, with the three remaining analysts rating the stock as a Buy, a Hold and an Outperform.

The median forecast among 11 analysts offering 12-month projections on SoftBank Corp’s share price stands at JPY1,690 according to the Financial Times —analysts gave a high estimate of JPY1,920 and a low of just JPY1,270. The median price target would represent a 30% rise from SoftBank Corp’s share price at close on 16 September.

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