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Earnings

SoftBank share price: what to watch out for in Q1 2020 results

SoftBank’s [9984] share price is likely to see some movement following the release of the bank’s Q1 results for the 2020 financial year on 11 August.

Led by Masayoshi Son, SoftBank has made its name backing tech companies. Uber [UBER], Slack [WORK] and Nvidia [NVDA] have all benefitted from millions of dollars in investment through the conglomerate’s $100bn Vision Fund. In Q3 results, however, these investments saw the fund’s value drop sharply as the coronavirus triggered a huge sell-off in the financial markets. 

Since that low point, tech stocks have surged in value, as has SoftBank’s share price. In the three months from 1 May, the stock climbed 43.12% and, if upcoming Q4 results show a reversal in SoftBank’s fortunes, the share price could be set to climb higher.

43.12%

SoftBank's share price rise in 3 months from 1 May

  

When is SoftBank reporting?

11 August

 

What could move SoftBank’s share price?

Tech bets pay off

SoftBank's share price has been through the mill so far in 2020, not least due to the performance of its Vision Fund, which invests heavily in technology companies.

In Q4 results, SoftBank’s Vision Fund posted a $17.7bn loss as the companies it invests in saw steep drops in value due to the coronavirus. However, with tech very much in vogue right now, the fund is looking set to return to profitability in the first quarter. 

$17.7billion

SoftBank's Vision Fund's Q4 loss

  

Last quarter, SoftBank’s heavy investment in Uber saw the Vision Fund lose $5.2bn in value as the ride-hailing company’s share price went into reverse. Since then, however, Uber’s stock has accelerated, which should bolster the fund’s value. 

Another eye-catching investment is Slack, in which SoftBank has $1bn invested. Since mid-March, Slack’s share price has soared 50% as investors continue to back the working from home phenomenon. Again, this should help the Vision Fund return to profitability this quarter. 

“For the next few years, valuations will continue to rise and Son will look like a genius investor again,” said Atul Goyal, senior analyst at Jefferies Group. “Considering how much the overall stock markets have climbed recently, it’s only natural that private valuations at the Vision Fund should rise too.”

“Considering how much the overall stock markets have climbed recently, it’s only natural that private valuations at the Vision Fund should rise too” - Atul Goyal, senior analyst at Jefferies Group

 

Raising billions through asset sales

SoftBank Group has reduced its stake in its domestic telecoms division, SoftBank Corp, as part of a programme to generate $41bn by selling assets. In May, the conglomerate raised $3.1bn in cash by cutting its holdings in the separately listed Telco from 67.1% to 62.1%. The extra cash is needed to pay down debt and fund a record stock repurchase scheme, which could see SoftBank’s share price reach record highs going forwards. 

SoftBank is also looking to generate cash by reversing some of the major investments that made its name. Already, the bank has raised $11.5bn by selling part of its stake in the Alibaba Group and over $14bn by selling a big portion of its stake in T-Mobile US. 

$11.5billion

Amount SoftBank raised by selling part of its stake in Alibaba Group

  

The biggest of these deals could be the proposed sale of chip-maker ARM to Nvidia. SoftBank purchased ARM for $32bn four years ago and reports suggest that Nvidia is willing to pay even more to get hold of the company.

News of the sale is a stunning reversal considering Son said ARM would be key to the future of the SoftBank Group at the time of purchase. Shareholders will be expecting an update on SoftBank’s strategy this quarter in light of such a significant change of heart. Any hint that it’s meeting the asset sale’s ambitious target could see SoftBank’s share price gain.

 

So, time to buy SoftBank?

Expectations are that SoftBank will post an operating profit of JPY171bn ($1.62bn) for April-June. While that's a 75% drop from the same quarter last year, it is still an improvement on the first-quarter results.

Looking longer-term, SoftBank’s share price has a 12-month JPY7,220 target from analysts tracking the stock on the Financial Times. Hitting this would see a 10.7% upside on SoftBank’s share price through 7 August’s close. Of the 14 analysts offering recommendations, 5 rate SoftBank a Buy and 9 rate it Outperform.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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