Rakuten Bank's Stock Faces Headwinds Amid Fintech Developments
Concerns Surrounding Rakuten Bank's Stock Performance
In a significant shift in perspective, BofA Securities has revised its rating for Rakuten Bank Ltd (5838:JP), moving from a Neutral stance to Underperform. This change comes alongside a reduction in the price target, which is now set at JPY3,300.00, a step down from the previous target of JPY3,600.00.
Factors Contributing to the Downgrade
The adjustment reflects a broader concern regarding Rakuten Bank's slower-than-expected improvement in return on equity (ROE) compared to competitors. Moreover, the decision by the bank to refrain from paying dividends has raised eyebrows among investors, further adding to the stock's unattractiveness.
Impact of Financial Technology Restructuring
One of the primary worries mentioned by analysts involves the potential dip in earnings per share (EPS) as the bank navigates through its financial technology restructuring. This transition could have repercussions on its long-term profitability.
Uncertainties in Share Exchange Ratio
Another area of concern is the uncertainty regarding the share exchange ratio between Rakuten Bank and its related Card and Securities units. With the first half results anticipated in January, investors are left speculating how these factors may affect stock performance.
Theoretical Cost of Capital Raises Concerns
Further complicating the situation, BofA has noted an increase in the theoretical cost of capital for Rakuten Bank, now raised from 7.41% to 8.01%. This adjustment is a direct response to the complexities and uncertainties arising from the bank's restructuring efforts.
Revised Price Objective Based on New Estimates
The recalibrated price objective reflects a more cautious approach, pivoting on the fiscal year ending March 2025's estimated book value per share (BPS) of JPY1,742. The analysts have applied a fair price-to-book (P/B) ratio of 1.89x for this assessment.
Outlook for Rakuten Bank
The current analysis indicates a wary sentiment regarding Rakuten Bank's financial outlook and strategic direction. Investors are likely to face pressures as they assess the impacts of the ongoing restructuring and the lack of dividend distributions. The new price target highlights a more conservative valuation stance in light of the prevailing challenges.
Frequently Asked Questions
What recent changes did BofA make regarding Rakuten Bank's stock?
BofA has downgraded Rakuten Bank's stock from Neutral to Underperform and lowered its price target from JPY3,600.00 to JPY3,300.00.
Why is there concern for Rakuten Bank's return on equity?
There are concerns about the bank's slower-than-expected returns on equity compared to its peers, prompting skepticism among investors.
How does the fintech restructuring affect Rakuten Bank?
The financial technology restructuring may lead to a decline in earnings per share (EPS), affecting investor confidence in the bank.
What is the revised cost of capital for Rakuten Bank?
The theoretical cost of capital has been adjusted from 7.41% to 8.01%, reflecting uncertainties related to its restructuring strategy.
What is the forecast for Rakuten Bank's stock moving forward?
The outlook remains cautious, with a conservative price target indicating potential pressure on the stock due to restructuring implications and dividend policies.
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