SoftBank Is Buy Opportunity After Alibaba, Jefferies Says

By Takashi Amano and Yuji Nakamura

SoftBank Corp. (9984), which has lost more than $8 billion in value since Alibaba Group Holding Ltd. (BABA) went public, is a “very compelling” buying opportunity because other parts of Masayoshi Son’s investment empire may be undervalued, according to Jefferies Group LLC.
SoftBank shares are down more than 8 percent since Sept. 19 as investors who were buying the Japanese carrier as a proxy for the Chinese company could purchase Alibaba shares directly. SoftBank, which owns about a third of the e-commerce company, now has a market value of about $87.4 billion.
That’s less than the value of its individual parts, which include
a wireless business in Japan and controlling stakes in U.S. carrier Sprint Corp. (S) and Tokyo-based gamemaker GungHo Online Entertainment Inc. (3765) Son has invested in more than 1,300 companies on his way to becoming Japan’s second-richest man.
“Running a sum-of-parts to assess the implied value of one part while taking market value of others implies that at current valuations either the Japan Telco business is coming for free or its Alibaba stake is almost free,” Atul Goyal, a Singapore-based analyst at Jefferies, said in a note to investors yesterday. “Several other valuable investments are not yet part of this.”
SoftBank closed 0.6 percent higher at 7,961 yen in Tokyo today, narrowing its decline to 13 percent this year.

Sprint, GungHo

SoftBank’s 32 percent stake in Alibaba is worth about $72.3 billion, based on the closing price for the e-commerce company’s shares yesterday. Goyal applies a 20 percent discount to the stake based on potential taxes and transaction fees.
The company’s 80 percent stake in Sprint is worth about $21 billion, based on the stock’s closing price in New York yesterday.
SoftBank’s 36 percent stake in Yahoo Japan Corp. (4689) is worth about $8 billion, while its 40 percent stake in GungHo is worth about $2.3 billion.
Subtracting the value of those stakes, along with Supercell Oy that was purchased for $1.5 billion last year, implies that investors who buy SoftBank shares get the company’s Japanese wireless operations for free, Goyal said. SoftBank is the No. 3 carrier in Japan.

Berkshire Hathaway

Competitors NTT Docomo Inc. (9437) has a market value of $75.9 billion and KDDI Corp. (9433) $54.2 billion, according to data compiled by Bloomberg.
Goyal maintains an 11,400-yen price target for SoftBank, about a 43 percent premium to today’s price. SoftBank is using cash flow from its wireless operations to fund investments in mobile Internet, and Goyal said he expected the company to benefit from other businesses including solar energy, social media and robotics.
SoftBank is trading at a price-to-book ratio of 4.85, according to data compiled by Bloomberg. That compares with 1.39 for NTT Docomo and 1.99 for AT&T Inc.
Warren Buffett’s Berkshire Hathaway Inc. (BRK/B) is trading at 1.47 times its book value.
A high ratio typically implies a premium on a company’s assets or higher expectations for its management.