Research Report on SMFG

Eberhardt Student Investment Fund

 

 

 

 

Company Name (Ticker): Sumitomo (SMFG) Country: Japan
Sector/Industry: Financials Stock Exchange (NASDAQ and NYSE ONLY):
Your group members: Date:
 

Step 1: Search for Country and Industry Information

· CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/

 

· World Bank Open Data: https://data.worldbank.org/

 

· Country credit rating: http://www.tradingeconomics.com/country-list/rating

 

· World Bank Doing Business Survey database http://www.doingbusiness.org/data

· Country governance and corruption: http://www.transparency.org/

· World Investment Report: http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1782

· Due date to decide the country and industry: October 13, 2017 (Friday)

 

 

 

Step 2: Screen for ADRs

· Based on your country and industry/sector research above, screen the ADRs in the country and industry/sector

· Website: https://www.adr.com/Investors/Markets

· Due date to decide your ADR company: November 17, 2017 (Friday)

 

 

 

 

Step 3: Search for company filings and financials

· Search for ADR company’s annual reports (in English) and financial data

· EDGAR website: https://www.sec.gov/edgar/searchedgar/companysearch.html

· Yahoo.finance website: https://finance.yahoo.com/

· Bloomberg terminal (USD library): search for the company in Bloomberg equity function

 

 

 

Step 4. Document your data and analyses in the following template, write up your research report

· Final presentation: December 11 – 15, 2017

· Final research report due date: December 15, 2017

 

 

 

 

 

 

 

 

Company Description

(Brief description of the company’s products and/or services)

 

 

Country Research

Explain why you choose to invest in this country or region. Try to collect data from various sources to address the following issues:

· GDP growth in the last five years

· Political risk

· Exchange rate policy and risk

· Major exports and foreign investment in the country

· Comparative advantage of certain industry/sector of the country

· Economic outlook of the country (or region)

· Any other relevant evidences to support your selection of the country

 

Industry Overview and Competitive Positioning

Briefly explain why you choose to invest in this industry and what is the competitive position of this company within the industry.

· Industry economic growth and outlook

· Industry export and foreign investments

· Major competitors (domestic and international)

· Entry barriers, key technology and resources, government policies of the industry

· Relative power to the supplier and customer industries

· Any other relevant evidences to support your selection of the industry

 

 

Company analysis

· Sales performance of current services or products

· Strategic focuses and future directions

· Market outlook ad new service/product developments

· Competitive advantage of the company in the global economy

· Key suppliers and customers

· Recent financial performance and performance drivers

 

Industry Competitive Analysis

Discuss major competitors – how are they similar; how are they different.

(Example from Entergy)

  ETR AEP CNP SO Industry
Market Cap: 23.08B 18.87B 5.35B 27.06B 3.31B
Revenue: 11.20B 12.89B 9.54B 15.17B 2.94B
Rev Growth: 5.40% 7.20% 10.30% 6.20% 7.10%
Gross Margin: 30.54% 34.44% 21.79% 51.38% 30.50%
Operating Margins: 16.43% 16.92% 11.56% 22.33% 12.89%
Net Income Margin: 6% 5% 4% 5.5% 4.5%
EPS: 5.463 2.252 1.039 2.27 1.42
Earnings growth: 2% 3% 1% 0.3% 1.2%
Dividend Payout (%): 20% 10% 30% 25% 22%
P/E: 21.59 20.99 16.04 15.68 17.53
P /B: 2.5 1.3 4.3 2.3 3.3
Debt/Equity (%): 100% 120% 80% 90% 95%
Operating Cash Flow to Sales (%) 12% 13% 11% 14% 11%
Assets Turnover 2.3 2.2 1.2 2.4 2.0
ROE (%): 12% 22% 13% 15% 16%

Source: Yahoo.finance or Bloomberg

Financial Performance

Annual Performance (Fiscal year end: )

($ millions) 2016 2015 2014 2013 2012
Revenue          
Net Income          
Revenue growth (%)          
Gross profit margin (%)          
Operating profit margin (%)          
Net Profit Margin (%)          
Assets turnover          
Debt / Equity (%)          
ROE (%)          
EPS          
Dividend Payout (%)          
P/E          
P/B          
Operating Cash Flow to Sales (%)          

Data Source: Yahoo.finance or Bloomberg

Discuss recent performance (strength and weakness) and future outlook

Recent Stock Performance

Discussion of performance over the past year relative to S&P, and the country or sector ETF performance.

 

 

Recent News and Events

 

Discuss the most important and recent news and events of the industry and the company that would affect the investment value of the company’s stock.

· General Electric to Sell Commercial Lending Business in Japan

· Dec. 15, 2015 HONG KONG – General Electric agreed to sell its commercial lending business in Japan to Sumitomo Mitsui Finance and Leasing, one of Japan’s largest leasing companies, for 575 billion yen, or about $4.8 billion.

· Johnson & Johnson, Sumitomo Mitsui Financial Group, and Diebold Nixdorf Join Work-Bench as Enterprise-In-Residence Partners

· Nov. 28, 2017 NEW YORK – Work-Bench, an enterprise technology venture fund in New York City, is excited to announce their three newest Enterprise-In-Residence Partners: Johnson & Johnson, a global pharmaceuticals company, Sumitomo Mitsui Financial Group (SMFG), Japan’s leading financial services company, and Diebold Nixdorf, a global financial and retail self-service, software and services corporation.

· Introduction of new stock compensation

· http://www.smfg.co.jp/news_e/e110061_01.html

 

List environmental, social, or governance controversies that arise in the news bellow.

· Japanese Banks Failing to Respond to Climate Change Risks, New Reports Finds

· June 22, 2017 TOKYO — A report released today by four NGOs – Rainforest Action Network, BankTrack, Sierra Club and Oil Change International – revealed that the world’s biggest banks, including Japan’s three megabanks, are failing to respond to climate risks through their continued financing of extreme fossil fuels.

· https://www.ran.org/mizuho_bank_presented_with_2017_irresponsible_bank_japan_award_in_front_of_annual_shareholder_meeting

· Investors Urge Banks to Support Re-routing Dakota Access Pipeline, Protect Water

· February 17, 2017 BOSTON – A coalition of over 130 investors representing over $685 Billion in assets under management called on banks financing the Dakota Access Pipeline (DAPL) to address or support the Standing Rock Sioux Tribe’s request to reroute the pipeline and avoid their treaty territory. Lead investor Boston Common Asset Management is joined by Storebrand Asset Management and Calvert Research and Management, with support from First Peoples Worldwide—along with CalPERS and the Comptroller of the City of New York. In a statement today, the investors encourage the banks to take urgent action and arrive at a peaceful solution that is acceptable to all parties.

· http://news.bostoncommonasset.com/banks-dapl/

· Japanese Banks ill-Equipped to Reform Banking Practices in Line with the Paris Agreement

· Oct. 12, 2017 TOKYO – Japan has revealed how Japan’s seven biggest banks are inadequately prepared to meet the rising demand for environmentally responsible banking practices. Six of seven banks responded with dissatisfying answers to the My Bank My Future petition which urged banks to stop funding fossil fuels and nuclear power in line with the Paris Agreement.

· https://www.banktrack.org/news/japanese_banks_illequipped_to_reform_banking_practices_in_line_with_the_paris_agreement

· Banks and Responsible Finance

· Sustainalytics – Even those companies showing comprehensive programmes continue to be the target of severe criticism. BNP Paribas, Credit Agricole, HSBC, Royal Bank of Canada, SocGen, Standard Chartered and Sumitomo Mitsui Financial are banks that, despite having rolled out best-in-class lending standards, have been repeatedly cited by civil society groups for their financial transactions with the coal industry and the weapons producing sector.

· https://www.cfaboston.org/docs/ESG/Sustainalytics%20-%20Banks_ResponsibleFinance.pdf

 

Has the company been involved in litigation that might impact its share price? See the Annual Report’s litigation section.

· SMFG is party to routine litigation incidental to the business, none of which is currently expected to have a material adverse effect on the financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of these lawsuits will not have a material adverse effect.

· The SMFG Group is engaged in various legal proceedings in Japan and a number of overseas jurisdictions, involving claims by and against it, which arise in the normal course of business. The SMFG Group does not expect that the outcome of these proceedings will have a significant adverse effect on the consolidated financial statements of the SMFG Group. The SMFG Group has recorded adequate provisions with respect to litigation arising out of normal business operations. The SMFG Group has not disclosed any contingent liability associated with these legal actions because it cannot reliably be estimated.

· https://www.sec.gov/Archives/edgar/data/1022837/000119312517217355/d409110d20f.htm

Valuation Model

 

· A full Discounted Cash Flow (DCF) model is NOT required for this report.

· A target price evaluation is NOT required for this report

 

You could use the simplest evaluation methods, such as the comparable valuation multiples (P/E, P/B). If the company pays stable dividends, you could also use the dividend discount method. More sophisticated methods, such as the free cash flow to firm (FCFF) or free cash flow to equity (FCFE) methods can be also used (although not required) in this analysis.

· Comparable valuation multiples (P/E, P/B). A valuation model will help investors to determine if is SMFG’s stock is a good buy. The valuation multiple is calculated by dividing stock price (P) by earnings per share (EPS). A company with a high P/E ratio is trading at a higher price per dollar of earnings than the industry and is overvalued. And a company with a low P/E ratio is trading at a lower price per dollar of EPS and is considered undervalued.

· https://www.investopedia.com/terms/r/relative-valuation-model.asp

· SMFG’s stock price is 8.17 with an Earnings Per Share of 0.892. This gives us a PE ratio of 9.15.

· The Price-to-Book ratio is used to compare the stock market’s value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share where the book value per share is equals the difference between total assets and total liabilities divided by the total number of shares. SMFG’s current closing price of their is stock is $8.16 or. The total assets as of 2017, for the fiscal year ended at March 31st is $1,715,436,000 while total liabilities is $1,622,262,000. Capital stock is $20,981,000. This would give us a book value per share of $4.44Price-to-Book ratio is roughly ¥181.71 or $1.61.

 

 

Investment Risk

 

Highlight the investment risk (if any) in the foreign country, industry and in the company’s ADR stock.

 

 

 

 

Sector Outlook and Holding Update Page

 

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