Source: Zhitong Finance
Sumitomo shares hit a record high last week; Elliot has previously driven organizational change processes at Toshiba (Toshiba) and SoftBank (SoftBank).
According to media reports citing information revealed by people familiar with the matter, Elliott Management Corp. (Elliott Management Corp.), a well-known US rights protection investment agency known for its aggressive investment style, has bought and held a large amount of the popular target in the Japanese stock market: Sumitomo Corp. (Sumitomo Corp.). Sumitomo Corporation can be described as the “stock god” and is one of the top Japanese trading companies favored by Warren Buffett (Warren Buffett). After taking a stake in a listed company, Elliott Investment, which has the title of “Wall Street Hunter,” can often directly push the listed company to adopt measures such as share buybacks to increase shareholder returns.
According to media reports, the investment scale of Elliot Management Company is about “tens of billions of yen,” and the deal has not yet been officially publicly disclosed. Every 10 billion yen (about 63 million US dollars) of investment is equivalent to holding 0.2% of Sumitomo Corporation's shares, if calculated based on last Friday's closing price of 3,909 yen. Elliot has previously driven organizational change and shareholder return processes for Toshiba (Toshiba) and SoftBank (SoftBank).
The Japanese stock market can be described as one of the markets with the highest concentration of aggressive investors. The Japanese government and government agencies such as the Tokyo Stock Exchange require Japanese companies to better manage their balance sheets and adjust their business strategies to increase shareholder returns.
Elliott Management, founded by billionaire Paul Singer (Paul Singer), recently focused on developers Mitsui Fudosan Co. (Mitsui Fudosan Co.) and Sumitomo Corporation. Previously, the company had chosen investment targets such as Toshiba Corp. (Toshiba Corp.) Top Japanese companies, such as SoftBank Group Corp. (SoftBank Group Corp.), and Dai Nippon Printing Co., Ltd. (Dai Nippon Printing Co.), are promoting large-scale stock repurchases by these companies.
According to media reports, people familiar with the matter said that Elliot had deep contacts with Sumitomo Corporation and shared the agency's views on how to further create shareholder value. It is currently unclear when the fund will begin to accumulate its shares in Sumitomo, and it is also unclear when discussions between the two parties will take place. An Elliott representative declined to comment, while Sumitomo said it would not comment on shareholders.
Since “stock god” Buffett publicly revealed a year ago that he would continue to increase his stock holdings in Japan's top five trading companies, the stock prices of these companies have soared to record levels. In February of this year, he said in a letter to investors that these companies pursue very shareholder-friendly policies, which are superior to those of the United States. Sumitomo's stock price reached an all-time high last week, with a cumulative increase of over 27% since this year.
According to the latest institutional statistics, Berkshire Hathaway Inc. (Berkshire Hathaway Inc.), a subsidiary of Buffett, holds approximately 8.3% of Sumitomo's shares. In addition to Sumitomo, Berkshire has invested in other top Japanese trading companies, including Mitsubishi Corp. , Mitsui (Mitsui & Co.) The five largest Japanese trading companies, Itochu Corp. (Itochu Corp.), and Marubeni Corp. (Marubeni Corp.), and Buffett himself has stated that he hopes to eventually hold about 9.9% of each trading company's shares.
According to the data, Sumitomo is the fourth largest trading company in Japan, with a current market capitalization of about 4.8 trillion yen. Its net price-earnings ratio is 1.1, and the expected price-earnings ratio for the next 12 months is about 9.5, all the lowest in the industry. Sumitomo's fiscal year 2023 earnings report will be announced on Thursday, when the company will also announce its mid-term business plan.
Japan's top five trading companies can be called a core component of the “Japanese Special Assessment” concept. The strong performance of the Japanese stock market must be strongly boosted by the “Japanese Special Valuation Concept.” Over the years, Japan's Tokyo Stock Exchange has continued to help Japanese companies whose stock prices are below book value and whose asset value is seriously undervalued by the market to formulate capital improvement plans, and to call and force undervalued Japanese blue chip companies to drastically increase the scale of dividends and share repurchases, further strengthen corporate governance capabilities, and actively participate in exploration and research of new technologies and global competition. Otherwise, they may bear corresponding penalties. This is the origin of the “Japanese special valuation concept.”
BlackRock (BlackRock), the world's largest asset management company, and Amundi Asset Management, Europe's largest asset management company, have recently predicted that profit growth and corporate governance reform measures will continue to attract large amounts of capital to buy “daily specials,” and the boom in the Japanese stock market will continue.
The stock prices of Sumitomo Corporation's peers have also recently risen due to higher shareholder returns. In February of this year, Mitsubishi Corporation announced that it would buy back up to 10% of its shares at a price of up to 500 billion yen, while ITOCHU Corporation stated in April that it plans to repurchase up to 150 billion yen of shares.
The positive effects of large collective stock buybacks by Japanese listed companies in recent years can be described as clearly boosting the Japanese stock market, continuously encouraging foreign investors to buy Japanese stocks, and driving the Japanese stock market to record highs.
Aggressive investors such as Elliott Investments can often directly drive listed companies' initiatives to increase shareholder returns, such as share buybacks and divestment of redundant assets. In April of this year, Mitsui Fudosan (Mitsui Fudosan) announced a plan to sell assets to increase profits and increase share buybacks. This market news broke two months after Elliott took a stake in the company. Under pressure from aggressive investors to invest in shares, Dai Nippon Printing Co., Ltd. (Dai Nippon Printing) announced the largest share repurchase plan ever in March 2023.