With R120bn stash, Prosus is in sweet spot to get Tencent monkey off its back
Iwould imagine many companies at home and abroad have meetings every other day to find new ways to cut operational costs in a frenzied rush for cash to build resilience amid forecasts of the deepest economic downturn in generations.
Prosus, the global internet unit of SA’s most valuable company, Naspers, is not one of them. It is in a sweet spot, sitting on about R120bn in cash and untapped credit facilities — enough to scale up its fastgrowing e-commerce platforms or go on a hunt for a big fish.
The company is one of the JSE’s best-performing stocks so far this year, having added almost 60% to its market value, far outpacing a barely changed JSE top 40 index.
That rally could be testament to the strength of its balance sheet or it could be something beyond the control of CEO Bob van Dijk, who has come under fire before for raking in big bonuses while riding on the back of Chinese internet colossus Tencent, in which Prosus holds almost a one-third stake.
That holding is worth R3.6trillion, dwarfing Prosus’s own market capitalisation of R2.7trillion and heaping pressure on the Dutchman to take further steps to release value trapped in the valuation gap.
With $7bn (R118bn) in cash and untapped credit facilities, he can avoid facing uncomfortable questions about his bonuses by making meaningful progress in his stated strategy of building Prosus on three pillars: online payments, food delivery and classified platforms.
The idea behind that is simple: Prosus should be much more than a proxy to Tencent, which has been growing at breakneck speed as locked-down consumers worldwide flock to its blockbuster video games and social media platforms.
Given that both chair Koos Bekker and Van Dijk have ruled out spinning off or selling down the company’s stake in Tencent, and that Prosus is not about to ditch its off-putting control structure — which makes it virtually impossible for investors to influence strategy — Prosus needs to scale up existing ventures into moneymaking businesses or land a mega-acquisition.
Judging by the performance of the company’s e-commerce platforms in the year to endApril, it is understandable to be sceptical that it can deliver and sustain returns to shareholders. The company’s payments and fintech, and food delivery business widened core profit losses by 56% and more than three times, respectively.
True, Van Dijk can hold up the company’s classifieds business, with brands such as OLX and Letgo, as an example of what can be achieved. The division swung into a $34m trading profit.
Still, that is hardly enough for investors to buy into Prosus for its underlying strategically controlled businesses that include iFood, Brazil’s biggest online food delivery platform, given that the company owes most of its $3.4bn core earnings in 2019 to Tencent.
It was thus perfectly sensible for Prosus to launch a R100bn hostile bid for Just Eat, an inprofit British food delivery platform, in 2019 as part of a plan to boost the company’s food delivery business by three times to $15bn in five years.
Sadly, its offer was not high enough to break up a proposed tie-up between Just Eat and Amsterdam-based rival Takeaway.com.
That setback, alongside lossmaking underlying businesses, is piling pressure on Van Dijk to scan the globe for a megadeal to show investors — especially European funds that had been starved of a sizable ecommerce firm — that the September 2019 listing of Prosus in Amsterdam was not just the relocation of its stake in Tencent from SA.
THE COMPANY IS ONE OF THE JSE’S BEST-PERFORMING STOCKS SO FAR THIS YEAR, HAVING ADDED ALMOST 60% TO ITS MARKET VALUE
PROSUS SHOULD BE MUCH MORE THAN A PROXY TO TENCENT, WHICH HAS BEEN GROWING AT BREAKNECK SPEED