For the latest stock of the week we’ve looked to Japan, where investors are still digesting the shock resignation of Shinzo Abe and what it might mean for the country's stock market. We asked Twitter what we should write about, and telecoms conglomerate-turned unicorn investor SoftBank (9984) has overtaken carmaker Toyota (7203) to win the poll.
Morningstar analysts describe SoftBank as a “unique investment opportunity” and through its $100 billion-plus “Vision Fund” has more global clout than your average domestic telecoms provider. Through a number of high-profile investments in companies like UK tech success story Arm Holdings and more recently office disruptor WeWork, whose IPO was controversially pulled last year, the company has developed a global reputation as a heavyweight tech investor.
The group owns large stakes in companies such as China’s Alibaba (BABA), Ping An Insurance (601318), and the US software firm Slack (WORK), whose shares have spiked this year amid the home-working boom. SoftBank is also backing India’s Uber challenger Ola, which launched in the UK in 2018.
While SoftBank’s shares have risen 37% this year to 6,544 yen (£46) in line with global tech stocks, Morningstar’s Dan Baker thinks the company is still trading below its fair value of 6,800 yen. The firm doesn’t possess an economic moat because it’s an investment company, but SoftBank’s heavy weighting (near 30%) towards wide-moat Alibaba is a big positive in valuation terms, Baker says.
Finding the Next Alibaba
One another unique feature of SoftBank is that its founder, Masayoshi Son, is still chairman and chief executive after setting up the company in 1981 as a software and computer magazines seller. “Masayoshi Son has an excellent track record of building value and expanding the company. An investment in SoftBank offers minority shareholders an opportunity to invest alongside him,” says Morningstar’s Baker. In terms of stewardship, the successful bet on Alibaba would mean that SoftBank has an “exemplary” rating, Baker says, but that track record has been marred by the WeWork debacle and some recent poor performance from Arm Holdings. “SoftBank may spend a lot [of money] trying unsuccessfully to find another Alibaba,” Baker adds, pointing out that the coronavirus crisis may make it harder to raise money to fund the big bets on which the company’s reputation rests.
Now known as the “We Company”, WeWork is assigned a valuation of zero by Morningstar analysts. That means that while it was once expected to float at a valuation of nearly $50 billion, it is now a big question mark in the SoftBank portfolio. SoftBank is currently helping WeWork to restructure and has recently paid $1.1 billion towards the debt financing of the office space firm, according to Pitchbook data.
Looking ahead, SoftBank has launched the second iteration of its Vision Fund. This was meant to focus on AI, but the poor performance of the first version (which lost nearly $18 billion in the most recent financial year) has made fundraising harder.
Pitchbook’s James Thorne thinks the key to Vision Fund 2’s success is to get countries like Saudi Arabia and Abu Dhabi, which heavily backed Vision Fund 1, to get on board. “If SoftBank wants to keep the good times rolling, it will most likely need to convince the world's largest sovereign wealth funds that the strategy is working,” he says.
