G.research Announces Investment Opinion: G.research Initiates Sony Corporation with Buy Recommendation

RYE, N.Y.–(BUSINESS WIRE)–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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