Naspers has a plan to close value gap
Under pressure from investors, Naspers boss Bob van Dijk reaffirmed his determination to close the gap between the group’s value and that of its underlying assets, particularly Tencent, a long-running issue for the technology investor.
Van Dijk has come under renewed pressure to narrow the valuation shortfall after several steps taken in the past three years, including listing the company’s global internet business in Europe and showering investors with cash via a share buyback programme, failed to permanently solve the problem.
He said the priority is to invest in and build a number of billion-dollar e-commerce businesses to tackle the issue.
“Taking action to reduce the discount to our net asset value so that the group is appropriately valued is really a key priority for the board and for me,” Van Dijk told a virtual news conference that was dominated by questions on how he would solve his long-standing nice-to-have corporate headache.
“Our strategy is focused on building global consumer internet businesses in high-growth sectors and we’ve put our money where our mouth is.”
He has drawn up a plan to build Naspers, whose biggest asset is a controlling stake in global internet arm Prosus, in segments such as online payments, classifieds, food delivery and education, which have enjoyed dizzying growth rates during one of the most punishing economic downturns.
Naspers has over the years invested $13bn across areas including edtech and food delivery, valuing its portfolio at between $35bn and $40bn and indicating an internal rate of return, or net returns, in excess of 20%. Growing and investing in the existing businesses, such as food delivery group Delivery Hero and education platform Udemy, could give investors reasons other than Tencent to buy shares in the company.
Naspers faces the challenge that the value of its business is dwarfed by its 31% stake in Chinese internet giant Tencent. While Naspers currently has a market capitalisation of R1.66trillion, its stake in Tencent is valued at about R2.94-trillion.
Listing its Prosus subsidiary in Amsterdam in 2019 was one of the biggest steps taken by Van Dijk and his team to narrow the valuation discount, hoping that handing a sizeable consumer technology company to European funds starved of it would boost the share price.
While the plan initially worked, the gap has since widened, prompting the company to launch an R82bn share buyback programme, the largest in SA’s history, in the hope that its share price will outpace that of its stake in Tencent and help narrow the discount.
“To some extent that is a problem of prosperity,” Van Dijk said. “If you look at our share price, we have dramatically outperformed. But since the [Prosus] listing, the discount has widened again,” he said.
Naspers shares have indeed been on the rise, up 25% so far in 2021, compared with the JSE all share index’s 10% gain. The stock was marginally down 0.82% at R3,780.75 at the close of trade on Thursday.