Japan’s SoftBank Group, opening a new tab, is anticipated to declare a net profit for the first time in five quarters on Thursday, boosted by big rises in the value of its listed assets.
The company has worked hard to strengthen its financial situation, and investors will be searching for hints as to what it will do with the substantial resources it now has available to deploy, particularly whether it will engage in share buybacks.
Many of SoftBank‘s investments are opaque, making forecasting difficult, although three of four analyst projections compiled by LSEG and Reuters call for a third-quarter profit of 282 billion yen to 460 billion yen ($1.9 billion to $3.1 billion). Only one calls for a loss of 67 billion yen.
The business has indicated that it will register $1.9 billion in gains on T-Mobile shares obtained last year after the requirements of SoftBank’s 2020 contract to sell Sprint to T-Mobile were met. The profits represent an accounting time lag in determining the fair value of the shares.
Analysts do not foresee substantial revaluations for its non-listed assets, many of which are in its Vision Fund 2, given the quiet capital markets of the past quarter.
A net profit would be a long-awaited turnaround for SoftBank and its founder, Masayoshi Son, whose reputation for having a Midas touch in investment was tarnished by the loss of high-flying office-sharing firm WeWork.
More agony occurred as SoftBank’s portfolio of tech firms in its two Vision Funds, which were valued at high levels between 2020 and 2021, fell out of favour in the higher interest rate environment that followed the epidemic.
To better its financial position, SoftBank sold nearly all of its “crown jewel” interest in Chinese e-commerce firm Alibaba (opens new tab).
As of the end of September, SoftBank’s cash position totaled 5.1 trillion yen ($34.5 billion), which included cash equivalents and liquid bond holdings.
According to analysts, investors have strong expectations that SoftBank will reward them with share buybacks.
SoftBank has previously performed share buybacks to assist address the discount to net asset value at which its shares trade, when the discount was similar.
“The setup for a buyback is very strong,” said Rolf Bulk of New Street Research. “But management’s intentions are still unclear.”
In recent quarters, SoftBank has “carefully restarted” investing, and it remains to be seen how much more aggressive the business will be.
“Whereas the rest of the world is investing aggressively in AI startups, SoftBank has become a lot more disciplined in its investments,” Bulk told Reuters.
It recently established tough quality and valuation requirements for investments, but with few deal announcements to yet, analysts are eager to see how many companies now seeking investment fit the bill.
They also stated that SoftBank may sell down or use as collateral its T-Mobile holdings or its 90% share in chip manufacturer Arm to fund investments or buybacks.
Between its first public offering between September and the end of December, Arm’s share price increased by 40%, making it SoftBank’s largest holding. However, because it is a consolidated subsidiary, the increase will not be shown in SoftBank’s net profit from investment.
