Niraj Gupta presented his in-depth investment thesis on SoftBank (Tokyo: 9984) at Best Ideas 2015.

SoftBank is a Japanese telecom and internet holding company headed by CEO Masayoshi Son, who owns 19% of the shares. SoftBank’s primary assets include: 1) a 32.6% interest in the Alibaba Group, valued at $82.2bn; 2) a 100% interest in SoftBank Mobile, the third largest Japanese wireless operator, and wireline telecom operations worth an estimated $47.7 billion; 3) an 80% interest in Sprint Corporation valued at $13.0 billion; 4) a 42.9% interest in Yahoo Japan, valued at $8.4 billion; and 5) other telecom and internet gaming assets valued at an estimated $7.0 billion. The stock is trading at an estimated 60% of net asset value, among the largest historical gaps we have seen. SoftBank has often traded at a premium to NAV, in large part due to Masayoshi Son’s renowned skill as an investor/partner and his proven capabilities as an innovator. We believe the growing dislocation between the stock price and NAV is primarily due to 1) recent shareholder turnover as a result of the Alibaba IPO (SoftBank was used as a Alibaba proxy prior to the IPO); 2) investor angst over potential future funding requirements for Sprint; 3) potentially large new investments and acquisition rumors; and 4) growing debt balances at the company. We expect the stock’s discount to NAV to narrow as 1) value investors focus on the fundamental value of the company; 2) SoftBank’s core assets continue to grow in value, led by Alibaba; 3) funding requirements for Sprint prove to be manageable, and 4) as time passes. At the current valuation, the stock more than discounts a worst case scenario for Sprint and gives the company no credit for management’s proven ability to create value. Mr. Son’s dream is to become the largest company in the world as measured by Ebitda, free cash flow, and net income.

About the instructor:

Niraj has over 20 years of experience analyzing and investing in publicly traded companies as a buy-side analyst/portfolio manager and a sell-side research analyst, with particular expertise in the technology, media and telecom industries. Prior to starting GCI Partners in 2008, Niraj was at Pequot Capital, Citigroup and Schroders.

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