Toshiba is Significantly Undervalued
The timing and size of Toshiba’s share buyback are both critical given our belief that Toshiba is severely undervalued. Toshiba’s operating businesses include sizable, high-quality, industrial companies that manufacture well-respected products and generate over ¥2.7 trillion of revenue (see slide 9 of the presentation). Many of these businesses have stable recurring revenue streams and high margins, are leading players in the domestic market and/or possess differentiated technologies. However, based on Toshiba’s September 27, 2018 closing price, the implied value for these operating businesses is ¥107 billion, or less than 5% of their intrinsic value.
While Toshiba has suffered from low operating margins for many years, there are numerous short-term initiatives for various business lines that will enable Toshiba to more than triple its margins to 5% in the next 12 to 24 months. These initiatives, laid out on slides 31-33, would increase the value of Toshiba’s operating businesses to ¥1.2 trillion. We expect the Toshiba Next Plan, once finalized, should further increase their value to ¥2.6 trillion by achieving more globally competitive margins of ~11%. By accelerating and increasing the share buyback as we recommend, Toshiba’s share price could reach ¥11,157 (see slide 22).