The recent public offering of Arm Holdings (NASDAQ:), a subsidiary of SoftBank (TYO:) Group, is expected to boost the Japanese conglomerate’s shares significantly. Arm’s shares were priced at $51 each during its Initial Public Offering (IPO) last week, quickly rising to a high of $69 before stabilizing. Currently, the market capitalization of Arm stands at around $60 billion. SoftBank, which acquired Arm for $32 billion in 2016, still holds roughly 90% of its outstanding shares, valued at approximately $54 billion.
On Monday, Pierre Ferragu, an analyst from NewStreet Research, issued a report presenting a positive outlook for SoftBank shares. Ferragu began covering Arm just before its IPO and has assigned a Buy rating to the stock with a target price of $59.
According to Ferragu’s analysis, Arm accounts for about 30% of SoftBank’s overall portfolio. He also pointed out that about 74% of SoftBank’s total assets are holdings in public companies. These companies include Alibaba (NYSE:), SoftBank Corp., T-Mobile, and Deutsche Telekom (OTC:). In addition, through its Vision Fund venture-capital portfolio, the firm owns shares in other publicly traded companies.
Ferragu estimates that after purchasing a quarter of Arm’s shares from the Vision Fund for $16 billion and the proceeds from the Arm IPO, SoftBank has approximately $32 billion in cash. He further suggests that the company could potentially raise over $21 billion in cash from lenders.
The analyst believes that SoftBank has ample resources to implement a substantial stock buyback program and increase its investment rate. He recommends that the company should focus its investments on generative artificial intelligence firms. Considering that SoftBank’s shares are trading at about a 45% discount to its underlying net asset value, Ferragu argues that a $10 billion buyback could be highly effective, potentially boosting the stock by approximately 24%.
As of Monday, Arm’s shares had declined by 9.2% to $55.16, while SoftBank’s shares had fallen by 1.3% to $22.
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