SoftBank Rises for Second Day as Investors Hope for Buybacks

(Bloomberg) -- SoftBank Group Corp. rose for a second day in Tokyo as investors' hopes grew for another share repurchase program, following the announcement of a complex deal with Deutsche Telekom AG. 

Shares rose as much as 11% at one point in Tokyo trading, before paring much of those gains to close 4.6% higher. That took its two-day gain to about 15%, amid a recent broader rally in Tokyo markets. SoftBank was nonetheless the biggest contributor to gains on the Nikkei 225 Stock Average, which rose 0.9%. 

“We think a buyback is now likely,” Citigroup Inc. analyst Mitsunobu Tsuruo wrote in a note on Wednesday, after the announcement of the Deutsche Telekom deal that will see SoftBank acquire 4.5% of the German carrier as well as sell part of its stake in T-Mobile US Inc.

That deal should eventually cash out over 1.45 trillion yen ($13.1 billion) in total that may be allotted to a “major share buyback,” Tsuruo wrote. 

Read more: SoftBank Swap Deal Seen as ‘Precursor' to Buyback: Street Wrap

While the Deutsche deal doesn't justify Tuesday's share increase, with cash coming from the Deutsche deal “markets may see this as a precursor to a buyback announcement,” wrote analyst Kirk Boodry of Redex Research in a note published on Smartkarma. “There has been such a lack of good news this quarter that any positive developments may be enough to generate some excitement.” 

When shares plunged in March 2020 as the coronavirus hit, CEO Masayoshi Son unveiled plans to sell off assets to reduce debt and fund buybacks. That helped shares surge nearly four-fold from their pandemic low to a record high in March 2021. But despite historic levels of profit at its Vision Fund, investors have been disappointed by the lack of a new buyback announcement. 

Shares fell after the firm concluded its 2.5 trillion yen repurchase program in May and didn't announce a replacement. They remain more than 25% off their peak despite this week's gains. Son said last month that the firm will conduct a buyback at some stage, but that he was still undecided on the timing and size. 

Amir Anvarzadeh, senior strategist at Asymmetric Advisors, cautioned that a number of factors, including debt refinancing, the drop in value of its stake in Alibaba Group Holding Ltd., and ongoing uncertainty over the sale of Arm Ltd. to Nvidia Corp., do not support the potential for another large buyback. He recommends being “more aggressive” in shorting the stock after its two days of gains. 

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