On Friday, BofA Securities reinstated coverage on Sompo Holdings, Inc. (8630:JP) (OTC: SMPNY), issuing a Buy rating with a price target of JPY5,270.00. The firm's analysis is based on a Dividend Discount Model (DDM), which anticipates a shift in the company's dividend strategy following the sale of strategic shareholdings.
The analyst predicts a change in Sompo's dividend policy starting in the fiscal year ending March 31, which will result in a dividend payout of 38% of the company's IFRS-based earnings. For the purposes of calculating a terminal value at the end of FY3/31, a dividend per share (DPS) of JPY229 and a discount rate of 4% were used.
Sompo Holdings has set a goal to divest its strategic shareholdings by the end of the fiscal year March 31, which is one year behind the schedule of its peers, Tokio Marine Holding and MS&AD. Despite this delay, the analyst chose to standardize the timing of the terminal value by adding the FY3/31 dividend to it.
The analyst expects that there will be no significant drop in dividends in the fiscal year beginning April 1, 2024, because the dividend is set at 38% of the adjusted profit, excluding any gains from the sale of strategic shareholdings. This leads to the belief that Sompo Holdings' stock has the potential to increase further, especially since there is an opportunity to revise the dividend payout ratio upwards compared to its competitors.
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