Leveraging Group Synergies And Digital Expansion Will Strengthen Future Prospects

Key Takeaways

• Leveraging group synergies and diversifying revenue streams significantly improve SBI Holdings' performance, pointing to potential for sustained revenue and earnings growth.
  
• Strategic expansion into digital assets and new financial products positions SBI Holdings for significant growth in financial and digital ecosystems.
  
• Volatility in crypto-assets, interest rate hikes, geopolitical risks, and execution risks in technology investments could significantly impact revenue and profitability.

Catalysts

Engages in the online securities and investment businesses in Japn and Saudi Arabia.

• SBI Shinsei Bank has leveraged group synergies to significantly improve its performance, achieving annual profit targets within nine months and doubling its deposits since joining the group. This growth trajectory indicates potential for sustained revenue and earnings improvements as synergies continue to be realized and expanded upon.
  
• SBI SECURITIES has successfully diversified revenue sources post-ZERO Revolution, with foreign stock trading, AI-related stock trading, and investment trust sales hitting record highs. The increase in trading volume and diversification of revenue streams is likely to bolster future revenue and earnings growth.
  
• The Crypto-asset business has reached record highs in revenue and profit, with Bitcoin trading volumes and other crypto-asset trading picking up significantly. Given global trends and potential favorable regulatory developments, this area is positioned for future revenue growth as market conditions improve.
  
• New strategic initiatives in asset management, including goals to increase AUM to ¥20 trillion by fiscal 2027, point to substantial potential for increased asset-based fee revenue and improved net margins as the business scales.
  
• The expansion into digital assets and new financial products, such as potential launches of crypto-asset ETFs in collaboration with Franklin Templeton, highlights a strategic direction towards high-growth, innovative markets, positioning the company for significant revenue and earnings growth in financial and digital ecosystems.

SBI Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SBI Holdings's revenue will grow by 1.7% annually over the next 3 years.
• Analysts are assuming SBI Holdings's profit margins will remain the same at 9.5% over the next 3 years.
• Analysts expect earnings to reach ¥136.1 billion (and earnings per share of ¥456.89) by about March 2028, up from ¥128.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥107.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, up from 10.1x today. This future PE is greater than the current PE for the JP Capital Markets industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.91%, as per the Simply Wall St company report.

SBI Holdings Future Earnings Per Share Growth

Risks

• The Crypto-asset business faces volatility risks, as profits greatly depend on market conditions, which could heavily impact revenue if the market turns bearish.
  
• Interest rate hikes can impact banking margins, as seen with a potential ¥14 billion annual impact on SBI Sumishin Net Bank, which could reduce net margins.
  
• The company has substantial reliance on international ventures, like Solaris in Europe, which may face geopolitical or economic risks affecting earnings stability.
  
• Ongoing repayment of public funds could strain financial resources, potentially affecting profitability if revenue streams fluctuate.
  
• The reliance on financial technological advancements involves execution risk, which could impact growth prospects and revenue if investment strategies do not deliver expected returns.

Valuation

• The analysts have a consensus price target of ¥4771.429 for SBI Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥5860.0, and the most bearish reporting a price target of just ¥3800.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1428.9 billion, earnings will come to ¥136.1 billion, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 10.9%.
• Given the current share price of ¥4298.0, the analyst price target of ¥4771.43 is 9.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.