Mizuho’s fintech punt would overdo optimism

Pedestrians are reflected on a sign board displayed outside Mizuho Financial Group's branch in Tokyo May 15, 2009. REUTERS/Yuriko Nakao/File Photo

MELBOURNE, Oct 6 (Reuters Breakingviews) - Always look on the bright side of life, says Monty Python. As handy a mantra as that is, Mizuho Financial (8411.T) may be taking it too far. The Japanese banking group is set to pay roughly 80 billion yen ($553 million) for a 20% stake in e-commerce giant Rakuten’s (4755.T) online brokerage unit, according to the Nikkei. That would be overly generous on two counts.

First, it values Rakuten Securities at an eye-popping 52 times earnings, based on annualised net profit for the six months to end of June. Listed rival Monex (8698.T) only trades at around 13 times earnings, despite sporting a 22% operating margin, better than Rakuten Securities’ 13%.

Second, Mizuho’s largesse will benefit parent Rakuten, the Japanese word for optimism. The struggling $7 billion conglomerate has been burning cash — $1.8 billion in the first six months of this year alone — thanks to its mobile network business. That should begin to improve, but even so Mizuho’s potential investment would only cover some six months of pain next year, according to Kirk Boodry, who writes for Smartkarma.

Sure, Rakuten Securities has rarity value, not least for banks with less of an online presence. But Mizuho could drive a harder bargain. (By Antony Currie)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own. Refiles to add links and fix coding.)

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