SoftBank: ova the hill Premium

Is the Japanese group really ready for the future?

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SoftBank is a goose that lays golden eggs, according to chairman and founder Masayoshi Son. On the evidence of full-year results, the Japanese group more closely resembles a swan: gliding smoothly forward at the cost of hard paddling below the surface. The question for investors is whether technological tides are starting to turn against it.

Mr Son bragged that it has taken SoftBank just 36 years to leap the ¥1tn net income hurdle that Toyota required 67 years to clear. But the 2016/17 figure included ¥554bn from discontinued operations, much of this from the sale of a stake in mobile games group Supercell.

Net income from continuing businesses was less of a landmark at ¥920bn. SoftBank took a hefty derivatives write-off of ¥252bn, most of it related to an options deal that allowed it to dispose of shares in Alibaba while retaining some upside. Gains on a straight sale of shares in the Chinese e-commerce group largely offset these losses.

Operating income rose 13 per cent to just over ¥1tn, beating forecasts. This reflected a decent performance from Japanese telecoms. Higher profits from US mobile subsidiary Sprint were neutralised by yen strength. Mr Son compensated for the let-down by announcing that Sprint was teaming up with chip business Qualcomm to develop 5G wireless technology.

Mr Son has always been more about what might happen in five years’ time than what happened last year. Bulls hope for further investments of the calibre of Alibaba. Bears suspect the group is a maturing business that has become too large and diverse to pull off further flashy coups. The pricey purchase of UK chip designer Arm for £23bn last year supports that view.

SoftBank shares are trading at three times its historical book value, according to S&P CIQ. That is still steep, but it is a quarter below the post-crisis average. Some of the gilt is wearing off those golden eggs.

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