Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

In mid-February 2020, upon releasing full-year earnings, <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a> announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in <a href="https://www.smartkarma.com/insights/gmo-internet-9449-buyback-bigger-than-it-looks-smaller-than-it-looks" target="_blank" data-smartkarma-citation="insights:36580" rel="noopener">GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks</a>. The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. <h2>The NEW News</h2><a href="https://ir.gmo.jp/pdf/presen/GMO_FY20_Q1_Consolidated_Results_Statement_200512.pdf" target="_blank" rel="noopener">Q1 earnings</a> were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.TODAY after the close, after having <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info20200512_01.pdf" target="_blank" rel="noopener">announced</a> the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company <a href="https://ir.gmo.jp/pdf/irlibrary/gmo_disclose_info2020514.pdf" target="_blank" rel="noopener">announced</a> a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. It's worth looking at where we stand now.

In mid-February 2020, upon releasing full-year earnings, GMO Internet (9449 JP) announced a buyback programme which looked big but had some interesting and distinguishing characteristics given where the shares were and what the ownership structure was. This was discussed in GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks. The Investment/Trading Conclusion offered was Bullish (see the green line at the top) for some specific reasons hinted at in the title (you want to know why? Read the first piece or see below).The stock closed at ¥2179 that day. The shares were up for two days. Then everything fell apart as COVID-19 caused the market to fall out of bed in Asia earlier than in the west. Since then, TOPIX is down 15.8% but GMO Internet is up 16.4% so it has seen decent outperformance in the 90 days since then. The NEW NewsQ1 earnings were out on the 12th. Revenues were up 14.6% yoy, OP is up 65%, and Net Profit is +11.4%. The stock gained more than 10% yesterday on the highest volume since Q1 earnings last year, and fell back a bit today.TODAY after the close, after having announced the progress programme-to-date of its buyback on 12 May (1.28mm shares for ¥2.48bn), the company announced a ToSTNeT-3 buyback to be executed tomorrow morning, of up to 3.153mm shares and up to ¥8bn at today's close of ¥2,537/share. Assuming the company buys back all 3.153mm shares they bid, that will mean 70% of the monies allocated for the buyback program lasting through next February will have been used, and at current price, that would mean the company could buy back another 1.78mm shares, maximum. That is about 1.6% of shares out and a bit under three days of volume. It's worth looking at where we stand now.

<a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett</a> has written about <a href="https://www.smartkarma.com/entities/gmo-internet-inc" target="_blank" data-smartkarma-citation="entities:13631:1" rel="noopener">GMO Internet (9449 JP)</a> over the years as an interesting holdco and most recently wrote about the situation as both a holdco and corporate governance situation in <a href="https://www.smartkarma.com/insights/gmo-internet-listed-holdings-preferred" target="_blank" data-smartkarma-citation="insights:29641" rel="noopener">GMO Internet: Listed Holdings Preferred</a>. Others including <a href="https://www.smartkarma.com/profiles/campbell-gunn" target="_blank" data-smartkarma-citation="accounts:2531" rel="noopener">Campbell Gunn</a> have written about it <a href="https://www.smartkarma.com/entities/gmo-internet-inc/insights?item=27803" target="_blank" rel="noopener">here</a>.
The stock has been the subject of activist interest in the past few years, and as such it has enjoyed a fair bit of press as well, though not always laudatory.
<h2>The NEW News Yesterday</h2>
The NEW News yesterday was that the company reported full-year earnings, with consolidated revenues climbing 5.9% to ¥196.2bn, OP climbing 16.0% to ¥25.3bn, and Net Income up sharply from last year's net loss to +¥8.3bn. 
The company also announced a downward-facing dividend (i.e. a slight cut in the Q4 dividend for 2019 vs 2018), and most importantly, a <a href="https://ir.gmo.jp/en/pdf/irlibrary/gmo_disclose_info20200212_3_e.pdf" target="_blank" rel="noopener">stock buyback</a>. 
It's a big one.
The company announced a buyback of up to ¥15bn or up to 9 million shares (7.95% of shares outstanding). This is an advancement on the company's Total Shareholder Returns Policy instituted in 2016, which stated that the company aimed to return 50% of parent profits to shareholders, with a dividend payout of 33% of total parent earnings, and the rest paid back in the form of share buybacks (but with flexible timing).
Given the share price of recent, assuming no change, it would be a buyback of only 6.9mm shares, which is 6.1% of shares outstanding, but it's a start.

David Blennerhassett has written about GMO Internet (9449 JP) over the years as an interesting holdco and most recently wrote about the situation as both a holdco and corporate governance situation in GMO Internet: Listed Holdings Preferred. Others including Campbell Gunn have written about it here.
The stock has been the subject of activist interest in the past few years, and as such it has enjoyed a fair bit of press as well, though not always laudatory.
The NEW News Yesterday
The NEW News yesterday was that the company reported full-year earnings, with consolidated revenues climbing 5.9% to ¥196.2bn, OP climbing 16.0% to ¥25.3bn, and Net Income up sharply from last year's net loss to +¥8.3bn. 
The company also announced a downward-facing dividend (i.e. a slight cut in the Q4 dividend for 2019 vs 2018), and most importantly, a stock buyback. 
It's a big one.
The company announced a buyback of up to ¥15bn or up to 9 million shares (7.95% of shares outstanding). This is an advancement on the company's Total Shareholder Returns Policy instituted in 2016, which stated that the company aimed to return 50% of parent profits to shareholders, with a dividend payout of 33% of total parent earnings, and the rest paid back in the form of share buybacks (but with flexible timing).
Given the share price of recent, assuming no change, it would be a buyback of only 6.9mm shares, which is 6.1% of shares outstanding, but it's a start. 

GMO Internet (9449) Buyback - Bigger Than It Looks, Smaller Than It Looks

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