In this briefing:
- Alps Alpine Buyback Proceeding Apace
- China – Eurozone Negative Feedback Loop.
- Smartkarma’s Week that Was in JP/KR: Yahoo Japan, Nexon, Kosaido and LG Electronics
- Rakuten (4755) Lyft Lifts Shares Price but There Is Much Further to Go.
- 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
1. Alps Alpine Buyback Proceeding Apace
Late last year, in the final run-up to the vote to determine whether Alpine (6816 JP) investors would subject themselves to a bad share exchange ratio or would choose to oblige Alps (6770 JP) to have another run at it in a different format, Alps announced a shareholder return policy which included buying back ¥40 billion of shares.
It is to be noted that this meant that the combined entity was going to be left with less cash than the total deemed necessary by the two companies just a very short while before. Why? Because Alps – with the strong governance it has – obviously had the right amount – and Alpine also had the right amount (it needed substantial equity-funded cash as “working capital” because otherwise it would run a serious danger of business disruption and deterioration. So despite this severe business risk, the two companies effectively announced they would disburse 90% of Alpine’s cash on hand to shareholders POST-MERGER through the special dividend offered to sweeten the pot to get the merger through, and the ¥40 billion buyback.
The merger, of course, went through, and the ¥28.4 billion* buyback is proceeding apace.
2. China – Eurozone Negative Feedback Loop.
Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit, this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China.
3. Smartkarma’s Week that Was in JP/KR: Yahoo Japan, Nexon, Kosaido and LG Electronics
Below is the list of the Japan/Korea-related posts put on the Smartkarma platform during the week of February 25th:
Insight | Insight Provider | Published |
Japan |
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27/02/2019 | ||
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South Korea |
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Japan/South Korea |
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28/02/2019 | ||
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4. Rakuten (4755) Lyft Lifts Shares Price but There Is Much Further to Go.
Assuming a sum of the parts valuation the shares are cheap. We can assume the fintech business is worth perhaps Y800-900bn (based on 10x ebit, similar to Credit Saison), the domestic e-commerce operation (which makes an operating profit of about Y70bn on revenue of Y450bn) is worth perhaps Y1.2tr (assuming a valuation of 3x sales vs. 3.5x for Amazon). There are other parts of the business which detract and there are others, including a Y350bn plus investment portfolio which add but overall, all this compares with a market cap of a mere Y1.3tr. This suggests the market is thinking that Rakuten is more than throwing its MNO investment of Y600bn away. Given the Governments desire to reduce prices in the mobile market, and its desire for 4 operators, we would suggest this is overly negative. The recent announcement that Lyft will seek an IPO has lifted the share price given its 10% stake in this name (rumoured valuation of $23bn vs. $15bn currently), but we suspect the shares have much further to run. The market knows earnings will be depressed for the next 2 years or so but does not anticipate any recovery thereafter it would appear.
5. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
- 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
- Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
- 7-Eleven’s recent shift focuses more on developing markets.
- Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees
On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.
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