October 7, 2013 8:49 pm

Sharp: slicing expectations

Group lucky to get what it can in rights issue given TV outlook

Something is better than nothing, at least when desperate. Sharp must know the feeling. On Monday, the Japanese electronics company priced the public offering it needs to keep its heart beating at a fifth below initial expectations. But given the outlook for Sharp’s mainstay TV business, it is lucky to get what it can.

Sharp will offer 450m shares – equivalent to about two-fifths of those outstanding – at Y279 a share. The Y119bn it will raise is a long way short of the Y150bn first touted. The price is just 4 per cent below Monday’s close, after shares had fallen 8 per cent ahead of the pricing. This values Sharp’s stock at 6 times next year’s earnings. This year it expects a Y5bn net loss.

Sharp still has good TV panel technology, but it is struggling to make money out of it. Its flat-panel display business generated a Y10bn operating loss in its first quarter that ended in June against total operating income of Y3bn. In 2007 TVs were making almost half of Sharp’s operating income. Things were expected to improve a little in the second quarter, but mostly helped by one-offs such as the technology fees that China’s CEC will pay Sharp for a joint production venture there agreed this year. There is still oversupply, especially for large screen displays, which is hurting prices. That leaves solar panels to come to Sharp’s rescue – they contributed Y7bn in operating income in the first quarter. But even this is not enough to return Sharp to its old form; it once generated Y102bn in annual earnings.

Sharp says its public offering has been fully subscribed. Granted, big names such as Samsung, Qualcomm and Makita have backed Sharp. But their Y40bn or so in combined investments pale against that of the ordinary shareholder. After this lifeline Sharp must boost its core capital with sustained earnings. But that is still a gamble.

This article has been amended to show that this year Sharp expects a Y5bn loss, not Y10bn as previously stated.

Email the Lex team in confidence at lex@ft.com

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