Valuation for SONY (SNE)
Sony has been in the middle of a
turnaround since the last little while. It finally has some good news
going for it. Its next generation console, the PS4 seems to be ahead
of its competitor Microsoft's Xbox. However, Sony is not a single
product company and its business ranges from electronics to financial
services in Japan. Putting a value on the stock is not easy.
The company's businesses
From a reporting perspective, the
company is structured around the following business divisions.
|
Division Name |
Description |
Sub-divisions |
|
Imaging Products and Solutions |
In the IP&S segment, Digital Imaging Products includes
compact digital cameras, video cameras and interchangeable single
lens cameras;
Professional Solutions includes broadcast- and professional-use products |
Digital Imaging Products Professional Solutions Others |
|
Game |
|
|
|
Mobile Products & Communications |
Mobile Communications includes mobile phones Personal and Mobile Products includes personal computers. |
Mobile Communications Personal & Mobile Products Other |
|
Home Entertainment and Sound |
Televisions includes LCD televisions; Audio and
Video includes home audio, Blu-ray disc players and recorders, and memory-based portable audio devices. |
Televisions Audio & Video Other |
|
Devices |
In the Devices segment, Semiconductors includes image sensors;
Components includes batteries, recording media and data recording systems. |
Semiconductors Components Other |
|
Pictures |
Motion Pictures includes the production, acquisition and
distribution of motion pictures;
Television Productions includes the production, acquisition and distribution of television programming; Media Networks includes the operation of television and digital networks. |
Motion Pictures Television Productions Media Networks |
|
Music |
Recorded Music includes the distribution of physical and
digital recorded music and revenue derived from artists’ live
performances;
Music Publishing includes the management and licensing of the words and music of songs; Visual Media and Platform includes the production and distribution of animated videos and the solution offering for music and visual products. |
Recorded Music
Music Publishing Visual Media and Platform |
|
Financial Services |
|
|
Looking at the performance of the
various divisions, we can see that some divisions are doing better
than others.
|
|
Q2 2013
|
|
|
SONY Divisions
|
Income (In Million US$)
|
Operating Income/Loss
|
|
Imaging Products and Solutions
|
$1,791
|
-$24
|
|
Game
|
$1,588
|
-$8
|
|
Mobile Products and Communications
|
$4,271
|
-$9
|
|
Home Entertainment and Sound
|
$2,692
|
-$123
|
|
Devices
|
$2,123
|
$122
|
|
Pictures
|
$1,815
|
-$181
|
|
Music
|
$1,773
|
$99
|
|
Financial
|
$2,500
|
$400
|
|
Total
|
$18,553
|
$276
|
Looking at the performance for the
year, we can see that year over year Sony's revenues have been
falling.
|
|
|
|
|
|
|
FY 2010-2011
|
FY 2011-2012
|
FY 2012-2013
|
|
|
|
|
|
|
Annual Revenue
|
$86,647,000
|
$78,902,000
|
$72,215,000
|
|
Cost of Revenue
|
$66,447,000
|
$62,246,000
|
$56,718,000
|
|
Gross Profit
|
$20,200,000
|
$16,656,000
|
$15,497,000
|
|
Operating Expense
|
$17,958,000
|
$15,995,000
|
$12,980,000
|
|
Total Other Income/ Expenses
Net
|
$350,000
|
$90,000
|
$448,000
|
|
Total costs
|
$84,405,000
|
$78,241,000
|
$69,698,000
|
|
Net Income
|
$2,242,000
|
$661,000
|
$2,517,000
|
|
Depreciation
|
$6,944,000
|
$6,178,000
|
$5,719,000
|
|
EBIT
|
$2,592,000
|
$751,000
|
$2,965,000
|
|
EBITDA
|
$9,536,000
|
$6,929,000
|
$8,684,000
|
|
Tax rate
|
25.41%
|
23.00%
|
9.70%
|
|
EBITDA X (1 – Tax rate)
|
$7,113,290
|
$5,335,280
|
$7,841,769
|
|
Capital Expenditure
|
$3,061,000
|
$4,649,000
|
$3,467,000
|
|
Net working capital
|
-$3,514,000
|
-$9,418,000
|
-$7,099,000
|
|
Delta Net Working Capital
|
|
-$5,904,000
|
$2,319,000
|
While the performance has been going
down, the company has been cutting costs to get in line behind the
numbers. However, it seems that some divisions are no longer viable
businesses and they need to be restructured.
Game Division
The Game Division has had a successful
launch of PS4 gaming console. Given the numbers and typical buying
patterns and margins, I have made the following calculations.
|
Game Division
|
Units
sold
|
Unit
price
|
Unit
margin
|
Revenue
|
Profit
|
|
PS4
Sales
|
4,200,000
|
|
|
|
|
|
US
Sales
|
2,940,000
|
$399
|
$18
|
$1,173,060,000
|
$52,920,000
|
|
Europe
Sales
|
420,000
|
$576
|
$195
|
$241,857,000
|
$81,837,000
|
|
Asia
Pacific Sales
|
420,000
|
$488
|
$107
|
$204,750,000
|
$44,730,000
|
|
Japan
sales
|
2,000,000
|
$400
|
$19
|
$800,000,000
|
$38,000,000
|
|
PS3
Console
|
1,000,000
|
$249
|
$100
|
$249,000,000
|
$100,000,000
|
|
PS3
Games
|
2,000,000
|
$30
|
$10
|
$60,000,000
|
$20,000,000
|
|
PS4
Games
|
4,200,000
|
$60
|
$20
|
$252,000,000
|
$84,000,000
|
|
Controller
|
3,000,000
|
$45
|
$10
|
$135,000,000
|
$30,000,000
|
|
PS
Plus
|
2,000,000
|
$35
|
$35
|
$70,000,000
|
$70,000,000
|
|
Total
|
|
|
|
$3,185,667,000
|
$521,487,000
|
Pictures Division
The Pictures Division has been under
scrutiny given activist investor Daniel Loeb. As a result Sony has
been providing some additional details about its movie productions
and a list of TV serials and channels.
Based on available information compiled
from Box office earnings, we can see that Sony will report a higher
earnings for this quarter than previous.
|
|
Q2 2013
|
Q3 2013
|
||
|
|
North America
|
International
|
Total
|
Total
|
|
Grown Ups 2
|
$132
|
$100
|
$232
|
$15
|
|
Blue Jasmine
|
$27
|
$27
|
$54
|
$41
|
|
The Smurfs 2
|
$70
|
$251
|
$321
|
$27
|
|
2 Guns
|
|
$16
|
$16
|
$116
|
|
Elysium
|
$92
|
$172
|
$264
|
$22
|
|
The Mortal Instruments: City of Bones
|
$26
|
$0
|
$26
|
$65
|
|
One Direction: This is Us
|
$29
|
$36
|
$65
|
$4
|
|
Insidious: Chapter 2
|
$0
|
$3
|
$3
|
$159
|
|
Battle of the Year
|
$8
|
$1
|
$9
|
$8
|
|
Cloudy With a Chance of Meatballs 2
|
$35
|
$1
|
$36
|
$219
|
|
White House Down
|
|
|
$0
|
$205
|
|
American Hustle
|
|
|
$0
|
$157
|
|
Captain Phillips
|
|
|
$0
|
$216
|
|
This is the End
|
|
|
$0
|
$126
|
|
After Earth
|
|
|
$0
|
$244
|
|
Evil Dead
|
|
|
|
$98
|
|
The Call
|
|
|
|
$69
|
|
Total
|
$419
|
$607
|
$1,026
|
$2,304
|
Also, if we project these forward based
on market size estimates and Sony share of the market, we can see
that Sony is likely to be in line with remaining studios in terms of
market share.
|
Pictures
|
|
|
|
|
|
|
|
|
Movies
|
2014
|
2015
|
2016
|
2017
|
2018
|
2019
|
2020
|
|
Global Boxoffice Market (In Millions)
|
$35,200
|
$36,700
|
$38,200
|
$39,700
|
$41,200
|
$42,700
|
$44,200
|
|
Sony's share of Box office
|
9.00%
|
8.50%
|
9.00%
|
9.50%
|
9.50%
|
9.50%
|
9.50%
|
|
Sony's earnings in Box office
|
$3,168
|
$3,120
|
$3,438
|
$3,772
|
$3,914
|
$4,057
|
$4,199
|
Based on rough estimates, here is my
projected numbers for Q3 due to be announced in Feb 6th
|
|
|
Q3 2013
|
|
|
SONY Divisions
|
Quarter gain/loss
|
Income
|
Operating Income/Loss
|
|
Imaging Products and Solutions
|
-10.00%
|
$1,612
|
-$50
|
|
Game
|
100.61%
|
$3,186
|
$0
|
|
Mobile Products and Communications
|
-5.00%
|
$4,057
|
$10
|
|
Home Entertainment and Sound
|
-5.00%
|
$2,557
|
-$150
|
|
Devices
|
-10.00%
|
$1,911
|
$150
|
|
Pictures
|
32.85%
|
$2,411
|
$415
|
|
Music
|
10.00%
|
$1,950
|
$100
|
|
Financial
|
10.00%
|
$2,750
|
$300
|
|
Total
|
|
$20,435
|
$775
|
Accordingly, these are my projected
values for next 5 years and resulting valuation.
|
|
|
|
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
|
|
FY 2010-2011
|
FY 2011-2012
|
FY 2012-2013
|
FY 2013-2014
|
FY 2014-2015
|
FY 2015-2016
|
FY 2016-2017
|
FY 2017-2018
|
|
|
|
|
|
4
|
1.01
|
|
|
|
|
Annual Revenue
|
$86,647,000
|
$78,902,000
|
$72,215,000
|
$77,070,351
|
$77,841,055
|
$78,619,465
|
$79,405,660
|
$80,199,717
|
|
Cost of Revenue
|
$66,447,000
|
$62,246,000
|
$56,718,000
|
$46,984,609
|
$44,635,378
|
$42,403,609
|
$40,283,429
|
$38,269,257
|
|
Gross Profit
|
$20,200,000
|
$16,656,000
|
$15,497,000
|
$30,085,743
|
$33,205,677
|
$36,215,856
|
$39,122,231
|
$41,930,459
|
|
Operating
Expense
|
$17,958,000
|
$15,995,000
|
$12,980,000
|
$24,889,391
|
$23,644,922
|
$28,373,906
|
$26,955,211
|
$25,607,450
|
|
Total Other
Income/ Expenses Net
|
$350,000
|
$90,000
|
$448,000
|
$393,000
|
$373,350
|
$20,000
|
$20,000
|
$20,000
|
|
Total costs
|
$84,405,000
|
$78,241,000
|
$69,698,000
|
$71,874,000
|
$68,280,300
|
$70,777,515
|
$67,238,640
|
$63,876,708
|
|
Net Income
|
$2,242,000
|
$661,000
|
$2,517,000
|
$5,196,351
|
$9,560,755
|
$7,841,950
|
$12,167,020
|
$16,323,009
|
|
Depreciation
|
$6,944,000
|
$6,178,000
|
$5,719,000
|
$3,384,000
|
$250,000
|
$250,000
|
$250,000
|
$250,000
|
|
EBIT
|
$2,592,000
|
$751,000
|
$2,965,000
|
$5,589,351
|
$9,934,105
|
$7,861,950
|
$12,187,020
|
$16,343,009
|
|
EBITDA
|
$9,536,000
|
$6,929,000
|
$8,684,000
|
$8,973,351
|
$10,184,105
|
$8,111,950
|
$12,437,020
|
$16,593,009
|
|
Tax rate
|
25.41%
|
23.00%
|
9.70%
|
25.00%
|
25.00%
|
25.00%
|
25.00%
|
25.00%
|
|
EBITDA X (1 –
Tax rate)
|
$7,113,290
|
$5,335,280
|
$7,841,769
|
$6,730,013
|
$7,638,079
|
$6,083,962
|
$9,327,765
|
$12,444,757
|
|
Capital
Expenditure
|
$3,061,000
|
$4,649,000
|
$3,467,000
|
$1,899,805
|
$2,089,785
|
$2,298,764
|
$2,528,640
|
$2,781,504
|
|
Net working
capital
|
-$3,514,000
|
-$9,418,000
|
-$7,099,000
|
|
|
|
|
|
|
Delta Net
Working Capital
|
|
-$5,904,000
|
$2,319,000
|
-$2,068,000
|
$0
|
$100,000
|
$100,000
|
$100,000
|
|
Free Cash Flow
|
$14,510,290
|
$12,768,280
|
$7,774,769
|
$10,282,209
|
$5,798,293
|
$3,935,199
|
$6,949,125
|
$9,813,252
|
|
Beta
|
|
|
1.55
|
|
|
|
|
|
|
Debt Financing
Rate
|
|
|
10.40%
|
|
|
|
|
|
|
Equity Financing
Rate
|
|
|
6.30%
|
|
|
|
|
|
|
Discount Rate
|
|
|
14.57%
|
|
|
|
|
|
|
Assumed Discount
Rate
|
|
|
15.00%
|
|
|
|
|
|
|
Number of
outstanding shares
|
|
|
1,019,000,000
|
|
|
|
|
|
|
EPS
|
|
|
$8
|
|
|
|
|
|
|
NPV@15% of FCF's
Year 1 to Year 5
|
|
|
28,295,413
|
|
|
|
|
|
|
Terminal Value
Estimates
|
|
|
|
|
|
|
|
|
|
Perpetual Growth
at 2%
|
|
|
$75,486,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareprice at
time of Analysis
|
|
|
16.72
|
|
|
|
|
|
|
Current P/E
using GAAP Diluted EPS
|
|
|
|
|
|
|
|
|
|
Assumed PE of 12
|
|
|
$130,744,071
|
|
|
|
|
|
|
Assumed Terminal
Value
|
|
|
$103,115,314
|
|
|
|
|
|
|
PV of Terminal
Value
|
|
|
$131,410,727
|
|
|
|
|
|
|
Current
Intrinsic Value Per Share
|
|
|
128.96
|
|
|
|
|
|
|
Projected EPS
Per Share
|
|
|
$27.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming annual
revenue factor from latest quarter
|
|
|
4X
|
6X
|
8X
|
10X
|
12X
|
15X
|
|
Stock price
|
|
|
$13
|
$23
|
$33
|
$43
|
$53
|
$73
|
This valuation still needs a lot of
research and analysis and is no way final. We will continue our
coverage on future blogs.
