SSUMF - Sumitomo Corporation: Fair Valuation Given Performance And Quality Of Peers

2024-02-20 20:39:34 ET

Summary

• Sumitomo’s revenue has grown well during the last decade, as its diversified business model has incrementally improved over time through corporate development.
• The company is heavily weighted toward commodities, making it susceptible to volatility in prices, which has already been observed with profitability declining in the LTM.
• While we believe it has a portfolio of quality assets, Management’s approach has likely left it in an inferior position relative to its directly comparable peers.
• This said, we do expect shareholder returns to improve as Buffett’s investment encourages greater distributions alongside optimizing its ROE.
• Sumitomo’s valuation does not imply value in our view, particularly given its performance relative to its peers.

Investment thesis

Our current investment thesis is:

• Sumitomo is a quality business with superior peers. The business is managing to keep pace but barely so. While its strategy transitions to be more aggressive, with a greater focus on growth, execution is still lacking and competition for quality assets is high.
• Further, we are not wholly positive about its weighting toward commodities, which has the potential to restrict its progress until there is sufficient dilution following growth in its other segments.
• We suggest investors consider one of the other S?g? Sh?sha, given the similarity of valuations at an EBITDA level.

Company description

Sumitomo Corporation (SSUMF) is a diversified global trading and investment company based in Japan. Established in 1919, it operates across multiple industries, including metal products, transportation and construction systems, infrastructure, media, and lifestyle-related businesses. With a rich history, Sumitomo Corporation is known for its commitment to sustainable development and innovation....

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