EM Telcos: When does digital drive a re-rating?
Communications
New Street examines when EM Telcos transition from being “Telcos with digital assets” to “Digital-first” companies and when the market begins to re-rate them accordingly. Their analysis of Safaricom and SoftBank Corp suggests that valuation multiples expand once digital revenues reach 15-20% of total sales. New St flags VEON, MTN, Airtel Africa, Vodacom, Kyivstar and Telefonica Brasil as EM operators now approaching this threshold. Digital businesses typically command higher growth, superior ROIC and lower regulatory risk, supporting a valuation premium. Reflecting this view, New Street upgrades their price targets for VEON ($100), Kyivstar ($16.4), Vivo (R$43), AAF (GBP 380), Vodacom (ZAR 200), Safaricom (KES 32) and MTN (ZAR 245).
Edition: 223
- 31 October, 2025
Technology
Richard Windsor argues SoftBank’s $2bn investment in INTC, alongside a potential 10% US government stake, may keep the company alive but does little to resolve its strategic paralysis. INTC faces a stark choice: either invest heavily to catch up with TSMC or break up the business - yet under new CEO Mr. Tan, neither path is clear. The board abandoned Pat Gelsinger’s catch-up strategy due to mounting costs, leaving INTC exposed to further share losses in PCs (to AMD and Qualcomm) and in data centres (to Nvidia and AMD). Richard warns that without decisive strategy, customer confidence will erode, competitors will gain share with ease and capital injections alone cannot avert decline. He sees no attractive entry point in INTC shares.
Edition: 218
- 22 August, 2025
Communications
SoftBank to invest up to $40bn in OpenAI starting with a $10bn tranche this month of which it will fund 75% itself. It will source the funds from Mizuho Bank although the group has sufficient cash on hand already. SoftBank's LTV ratio increases from 12.9% at Q3 end to c.17%. It should be able to raise up to $46bn in funding through asset-backed finance and borrowing up to the 25% LTV level relative to commitments of c.$47bn (OpenAI, Ampere, Aug payment to SVF for ARM and the initial Stargate push). SoftBank will probably lose money this quarter but not so much it doesn’t end the year in the black. Vision Fund was down $1.1bn, largely on India weakness (-$1.2bn across its four public investments) with the rest of the portfolio moving sideways. The discount to NAV has widened slightly to 55% but remains well within the recent trading range. TP ¥11,000 (65% upside).
Edition: 208
- 04 April, 2025
Fintech Tracker: Private market valuations have been improving
Financials
Fintech operational performance remains healthy with usage and / or revenue growing in the high teens across the segments Astris tracks. Relative to their coverage, the main issues are the path that DoCoMo takes to adding banking to its fintech portfolio (Astris thinks it will build a smartphone app) and the timing and size of a PayPay IPO. In the case of the latter, a surge in private fintech values (up 30%+ in 2025) looks promising although recent market volatility adds some doubt. A longer timeline to a listing gives LY Corp / Softbank time to further expand PayPay’s fintech presence.
Edition: 207
- 21 March, 2025
Stargate & AI: The magic money tree
The ambitious Stargate project fails to consider that none of the current players except SoftBank and MGX have the money to even complete the first phase, $100bn. However, given the glamour and glitz, Richard Windsor expects the shortfall to be made without much difficulty. The project is essentially a private equity fund with OpenAI and SoftBank as its main partners, with investments made in AI infrastructure including data centres and electricity generation. Where the remaining $400bn will come from remains a mystery. Richard sees this as taking far longer to materialise, especially given generative AI’s failure to meet consumer expectations throughout 2024. Once reality asserts itself, Stargate will be a smaller but probably better and more efficient investor.
Edition: 203
- 24 January, 2025
Communications
Shares of NTT have slumped this year as concerns on mobile performance and local exchange profitability weigh on sentiment even as regulatory and political uncertainty lingers. At the company’s recent IR day, management was able to address the former, focusing attention on improvements in mobile and its regional businesses although we will have to wait for the politicians and regulators to address the latter. Large-cap telecom peers have performed much better than NTT, which has expanded the valuation gap with NTT looking much more attractive at 11x FY24e EPS vs. KDDI (14x) and Softbank (17x). NTT has also increased its dividend 12 years in a row and Kirk Boodry does not expect it to stop now. TP ¥207 (40% upside).
Edition: 196
- 04 October, 2024
Communications
Galliano's Financials Research
The current share price discount to the stated NAV of 53% may seem optically attractive, but Victor Galliano believes this figure will be subject to valuation headwinds going forward. Arm (45% of SoftBank Group’s equity value) is starting to experience limits to its “growth at any price” stock status. It trades at super-premium valuations which are unsustainable, not least as Nvidia trades on less than half the prospective earnings multiple for just slightly lower forward consensus EPS growth. Furthermore, while the JPY’s depreciation is supportive of the group NAV, with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done.
Edition: 184
- 19 April, 2024
Generative AI: With Japanese LLMs coming online, 2024 will be more eventful
In 2023, generative AI took the world by storm but the impact in Japan was less exciting as language and heavy computing loads dampened performance. That should change with the deployment of Japanese-specific LLMs which are already performing modestly better in some tests versus larger general-purpose English LLMs and with less power intensity. Kirk Boodry lays out the basics and state of play for generative AI in Japan within his Telecom / Internet coverage. SoftBank Group and NTT have been early winners thanks to exposure at the infrastructure / platform layer, but true gen AI deployments are only just starting.
Edition: 178
- 26 January, 2024
Communications
A surge in the value of Arm Holdings has provided some support for SoftBank shares since an early Dec swoon although the discount has also widened as markets have been hesitant to allocate full value to short-term changes in NAV and (probably) an uncertain yen. Kirk Boodry expects the long-term story for SoftBank will be aligned more with Vision Fund activity, both monetisation and a step up in investment pace, but the discount here provides an attractive entry point (discount to NAV currently stands at 50% - the largest it has been since the Covid sell-off in Mar 20). In Kirk’s latest report he updates his model for Q3 (Dec) including forecasts for the quarter.
Edition: 177
- 12 January, 2024
Communications
Galliano's Financials Research
Victor Galliano continues to be cautious on SoftBank due to its 1) WeWork exposure (estimated at USD 1.8bn and looks increasingly to be at risk of being written off), 2) the risk of over-valuation of private companies in the Vision Funds (private companies accounted for 64% of SVF1’s fair value with SVF2’s private companies accounting for 84% of the fund’s total equity value) and 3) Masa’s debts to SoftBank (USD 5.1bn). In the near term, the upside potential to equity value rests largely with the Arm IPO, but Victor is concerned that its AI credentials may well be being overstated by SoftBank's management.
Edition: 167
- 18 August, 2023
Industrials
Activism on easy street - shares soar after response to Elliott’s demands. While there is some operational / fundamental / earnings risk in the near future, Mio Kato would not be surprised to see the market mostly ignore this and instead choose to focus on what the “new” DNP will look like. He describes it as a less sexy play than Toshiba and Softbank, but thinks the returns on offer are greater, while the risks feel noticeably lower. Mio also believes this could prove to be a key acceleration point for Japanese governance improvement and provides a simple and obvious playbook for activism in the country.
Edition: 154
- 17 February, 2023
Communications
Galliano's Financials Research
The tough market environment for publicly listed and unlisted tech companies remains, and yet SoftBank’s share price has held up since the end of Sept. In part, this is due to the share buybacks in place, and its reduced exposure to Alibaba through its derivative contracts. Nonetheless, Victor Galliano shows that SoftBank’s share price strength is unlikely to last, given the declining valuations of its listed holdings and the recent down rounds relating to its unlisted holdings which will be at least partially captured in 2Q22 results.
Edition: 148
- 11 November, 2022
Financials
Galliano's Financials Research
Another blow for SoftBank as its fintech holding eToro has its IPO plans de-railed and now its latest funding efforts point to a "down round" - the now defunct SPAC deal had implied eToro was worth in excess of USD10bn. However, its latest funding round suggests a valuation range of only USD5-6bn, and Victor Galliano argues that even at this lower valuation eToro is too expensive, pointing to the fact that its valuation to assets under administration is at a massive premium to all listed peers.
Edition: 140
- 22 July, 2022
NTT (9432), KDDI (9433), Rakuten (4755)
Communications
It is now clear that NTT and KDDI have entered a phase of faster growth, which New Street calls "The Golden Age". They expect SoftBank to enter it in 1-2 years. Stocks are not priced for this, nor for the likelihood that Rakuten scales back or exits its MNO business. New Street increases their TP to ¥5,250 for NTT (35% upside) and to ¥6,000 for KDDI (40% upside). For Rakuten, they remain bearish and cut their TP to ¥520 (20% downside).
Edition: 139
- 08 July, 2022
Technology
Investment blacklist will further pressurise the upcoming US$18bn lock-up release - a limited free float likely explains why shares in this AI software provider have performed so strongly since listing despite sentiment surrounding its IPO being so weak. However, this will change drastically when the lock-up expires later this month. Even if one assumes that SoftBank, Alibaba and Cornerstone's won’t sell, there is still 45% of the company, worth US$11bn coming free. Furthermore, due to it being on the US investment blacklist, which bars US companies from investing in it, some shareholders will have to sell.
Edition: 138
- 24 June, 2022
Communications
Transfer of Arm China shares does nothing but raise red flags - Arm moves its shares in China JV to a special purpose vehicle which it owns together with SoftBank. While this could technically eliminate the obstacles to an audit for an IPO, Mio Kato believes regulators would be remiss in allowing such a flimsy change to pass muster. In addition, the move reeks of desperation for cash and SoftBank’s typical disregard for prudence and the importance of due diligence to investors. Stay short.
Edition: 133
- 14 April, 2022
Technology
The FTC drops the hammer as it announces that it will be suing NVDA (and SoftBank) to block the acquisition of Arm - this is a significantly stronger move than any other regulator has made so far and the scale of the remedies required could end up destroying the value of the deal for NVDA. The simplest solution to SoftBank’s ownership of Arm is to put it back where it found it on the LSE. The problem here is that this deal is now worth $80bn to SoftBank thanks to the blistering rally in NVDA’s share price. If Arm relists on the LSE (or even the Nasdaq), achieving a valuation of this magnitude will be almost impossible.
Edition: 125
- 10 December, 2021
Technology
Still needs a whole lot of hope to justify valuation - Sumeet Singh runs the rule over India’s biggest IPO which is backed by the likes of Alibaba, Softbank and Berkshire Hathaway. Paytm looks very expensive when compared to some of the superapps (SEA / MercadoLibre), which have all grown much faster. The declining take rate in its payment services segment is also a concern, while a drop in marketing and promotion costs could impact customer acquisition and growth. Paytm will have to keep a very tight lid on expenses to make a profit even in FY24. One to avoid.
Edition: 123
- 12 November, 2021
Nvidia (NVDA)
Technology
Blueshift Research examine whether dramatic developmental changes in chip technology are putting increased pressure on NVDA to close its deal to buy Arm - smart everything means that the standard edge-to-the-data center model is going to break; a new kind of edge-based compute fabric centred around Arm’s tiny chip designs will rapidly emerge - an area that NVDA does not have a strong foothold. They also consider opposition to the deal to be short-sighted especially since Softbank cannot fund the innovation necessary for Arm to continue to evolve chip architecture.
Edition: 109
- 30 April, 2021