This may be a good time to get on board

Financial Mail - Investors Monthly - - Analysis - Stafford Thomas

Naspers, the undis­puted JSE heavy­weight cham­pion, weighs in with a mar­ket cap of R1.45 tril­lion. But its mar­ket cap should ar­guably be R450m (31%) higher than it is. That would lift its mar­ket cap to R1.9 tril­lion, putting it in line with the value of its 31.17% stake in Ten­cent, a Chi­nese in­ter­net, gam­ing and tech gi­ant.

Look­ing at the mar­ket cap co­nun­drum an­other way, if the mar­ket is valu­ing Naspers’s hold­ing in Ten­cent at its full R1.9 tril­lion, it is plac­ing a neg­a­tive value of R450m on its other as­sets. They are as­sets which in Naspers’s year to March gen­er­ated rev­enue of $3.9bn with the bulk ($3.65bn) from e-com­merce in­ter­ests.

“Share­holder pres­sure on Naspers’s man­age­ment to take ac­tion to un­lock value is mount­ing,” says Evan Walker of 36One As­set Man­age­ment.

Not that such calls are new. “They have been around since Naspers’s share price was R200,” says Walker. That was 10 years ago. Naspers’s price is now R3,370.

So­lu­tions punted by an­a­lysts in­clude split­ting Naspers into two sep­a­rate com­pa­nies, one hous­ing Ten­cent; one its other as­sets. An­other has been for

Ten­cent to ac­quire Naspers.

There have also been calls for Naspers to sell its en­tire stake in Ten­cent.

But find­ing a buyer with the fi­nan­cial mus­cle would be a tough call. If one were found the Chi­nese gov­ern­ment would prob­a­bly block any move that would place such a large in­ter­est in the strate­gi­cally im­por­tant Ten­cent into for­eign hands.

Naspers CEO Bob van Dijk has ac­knowl­edged that the value gap is too high and has com­mit­ted Naspers to in­ves­ti­gate “struc­tural op­tions”.

Where Naspers has been act­ing is in ac­cu­mu­lat­ing sub­stan­tial cash re­sources.

In March, it an­nounced the sale of 2% of its stake in Ten­cent for $9.76bn. This left Naspers sit­ting on net cash of $8.2bn at the end of its past year. It’s a sum set to grow.

In May Naspers an­nounced that it has agreed to sell its 11.18% stake in In­dian e-com­merce group Flip­kart to Wal­mart for $2.2bn. Flip­kart was a win­ner for Naspers, gen­er­at­ing an in­ter­nal rate of re­turn of 32% on the $616m it has in­vested in the In­dian group since ac­quir­ing its stake in 2012.

Since its year end Naspers has al­ready closed a big deal: a 22.75% stake in Ger­man-head­quar­tered on­line food de­liv­ery group De­liv­ery Hero for $775m. It has the mak­ings of an­other win­ner in­vest­ment.

But for now, and prob­a­bly many years to come, Naspers is dom­i­nated by Ten­cent which, in the past year, con­trib­uted a trad­ing profit of $3.675bn on an eco­nomic in­ter­est ba­sis.

Ten­cent, in which Naspers bought its stake in 2001 for $33m, keeps pow­er­ing ahead. In its year to De­cem­ber Ten­cent upped rev­enue by 56% to $36.4bn. Profit at­trib­ut­able to share­hold­ers grew by an even stronger 74% to $10.94bn.

In the first quar­ter of Ten­cent’s new year rev­enue was up 48% to $11.7bn. Prof­its at­trib­ut­able to share­hold­ers rose 61% to $3.7bn.

With Naspers’s price down 17% from Novem­ber, when it was at its high­est yet, this could be the ideal time to take the plunge. ●

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