The debut by the insurance and banking operator is the first direct listing in the country in more than two decades, and is seen as a test of how companies can improve valuations by through spinoffs and listing businesses.
This is also in line with the reform push made by the government and the Tokyo bourse, with the nation’s economic ministry even encouraging companies to reconsider business portfolios with tax breaks for spinoff transactions.Sony’s spinoff and listing, a rare instance among Japan’s blue-chip firms, would result in two distinct businesses, which is being seen as making it easier to understand, leading to better pricing multiples.
“This transaction makes a ton of sense. Said simply, there is no reason that a company that makes movies, video game consoles, produces music, and semiconductors should be in the financial services business,” Richard Howe, founder of research firm Stock Spin-off Investing, said in a note on Smartkarma. “I would love it if this spin-off were just the first step for Sony to transition from a conglomerate to many pure play publicly listed companies.”Yet, the stock may face technical selling pressure as the company complies with the Nikkei 225 index’s new methodology under which the spun-off company will be excluded from the index calculation on the next business day after the listing date. This could see passive funds selling 125 million shares, according toan estimate by analyst Junichi Hashimoto at Daiwa Securities Co.
Moreover, the entity’s life insurer unit is vulnerable to rising interest rates as it has a large holding of super-long Japanese Government Bonds, which in turn will have a bearing on its stock price, according to Masao Muraki, an analyst at SMBC Nikko Securities Co.
Research firm Stock Spin-off Investing’s Howe expects “indiscriminate selling” and thinks Sony Financial Group would be an attractive buy at ¥111 or lower.
But there’s hope for Sony Financial. SMBC Nikko’s Muraki says the insurance and banking units have strong top-line growth, and that should bring premium to the shares. The company estimates ¥82 billion of net profit for the ongoing fiscal year ending March 31, up 4.1% on year, according to a release.
Nomura Securities Co., Goldman Sachs Group Inc. and JPMorgan Chase & Co. are the advisers to the deal.
Read Also: HDFC Bank in focus after Dubai authority bans local branch from onboarding clients, conducting new business
