Sony shares leap 12% on buyback and dividend plans, higher profit outlook

By Sam Nussey

TOKYO (Reuters) - Shares in Sony Group jumped 12% in early Tokyo trading on Wednesday after the company pledged to boost shareholder returns and forecast higher annual profit with a boost from its image sensors business.

The tech and entertainment conglomerate said it would spend up to 250 billion yen ($1.6 billion) on a share buyback and gradually increase dividends with a target of a 40% total payout ratio by the financial year ending March 2027.

The payout ratio was 32% last year. All in all, Sony said it will allocate 1.8 trillion yen over the next three years to growth investments and share repurchases. It will also conduct a five-for-one stock split to expand its investor base.

Group shares had fallen in recent months with investors concerned about the outlook for the games business and the financial impact of a potential bid for Paramount Global. With Wednesday's gains, however, the shares are roughly flat for the year to date.

Sony is rethinking its bid for the U.S. media company, CNBC reported overnight. The Japanese conglomerate is interested in buying Paramount in a consortium with buyout firm Apollo Global Management, Reuters has reported.

"Disney acquired Fox but has failed to add any value since that acquisition. Our preference is a bid for Paramount does not materialize," Jefferies analyst Atul Goyal wrote in a client note.

Sony said it expects lower PlayStation 5 sales of 18 million units in the current financial year, after narrowly missing its revised target of 21 million units in the year ended March.

The group has restructured management of the games business with executives overseeing the technology and content sides of the business to report to group president Hiroki Totoki.

Sony says that higher user engagement and control over costs can drive profits at the games unit, which reported an operating profit margin of 6.8% last year.

"There is large potential upside. We hope that the new (management) team is able to drive margins higher," Goyal wrote.

($1 = 156.5200 yen)

(Reporting by Sam Nussey; Editing by Edwina Gibbs)