G.research Announces Investment Opinion: G.research Initiates Sony Corporation with Buy Recommendation
NOTE TO EDITORS: The following is an investment opinion issued by G.research, LLC
Today, G.research analysts Alec Boccanfuso (gaming), John Tinker (music & pictures), and Gabelli Funds analyst Hendi Susanto (technology) initiated coverage of Sony Corporation (SNE ? NYSE) with a Buy recommendation and a 2020 Private Market Value (PMV) estimate of $92 per share in an extensive 32-page report titled Sony Corporation: Creative Entertainment, Technology and Value.
Sony is a reawakening conglomerate giant focusing on direct-to-customer entertainment products supported by the company's technology. Sony is early in the improvement process with a structure encompassing six companies exacerbated by the perception that it is still an electronics company. We estimate flat EBITDA in 2019 at $8.4B increasing 8% in 2020 and 10% in 2021 as the gaming division turns.
- Sony is the #1 integrated global gaming company and we expect the gaming segment to contribute over 1/3 of total EBITDA (ex-financial) in 2020 following the launch of the PlayStation 5. Sony is trading at 7.4x EV/EBITDA compared to stand alone gaming companies such as Activision Blizzard at ~15x (historically up to 20+ times). Stripping out Electronic Products & Solutions and Imaging Sensing Solutions at their low valuations of 5x and 8x, respectively, implies the media businesses are still trading at less than 7x.
- Out year Gaming EBITDA growth should be supported by the continued shift to digital game distribution and subscription growth in both PS Now & PS+.
- Music Recording commands #2 and Publishing #1 global share and it is one of the few public vehicles to invest in the growth of music streaming at a third of the price of Tencent's proposed investment in Vivendi Universal Music Group (UMG).
- Pictures could benefit from a possible studio JV or sale of subscale Columbia Studios. Columbia is well positioned following the sale of Seinfeld streaming rights for over $500 million before the OTT giant platforms fully integrate and cut out the independents.
- In Imaging and Sensing, Sony is an image sensor leader with over 50% global revenue share and is a dominant supplier to Apple iPhone, with further growth opportunities in automotive.
- Electronics is a globally diversified cash cow.
- We believe the company's continued share repurchase shows a stronger focus on strategic allocation of capital.
Please contact your G.research salesperson for a full copy of the report including important disclosures. For more information call the G.research institutional trading desk at 914-921-5150.
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