The firm is more than Tencent
Undervaluing its stake in the Chinese giant, investors are impatient to see discount on other assets narrow
Naspers is the undisputed giant among SA companies with its R1.13 trillion market capitalisation equal to the combined market caps of its nearest rivals, Steinhoff, Firstrand, Sasol and Vodacom. But as impressive as Naspers’s market cap may be, it should arguably be at least a third higher.
This would merely bring Naspers’s market cap into line with the R1.52 trillion value of its 34% stake in Chinese online giant Tencent Holdings. Naspers paid US$33M for its Tencent stake when it acquired it in 2001.
As things now stand, the market is seemingly valuing all of Naspers’s other interests, which generated total revenue of $7bn in its year to March, at a negative R390bn. This is up from a negative R178bn just four months ago.
The negative valuation is even bigger if Naspers’s other listed interests are taken into account. The largest of these is a 29% stake in Russia’s biggest Internet services group, London Stock Exchange-listed Mail.ru, worth R19.4bn. Mail.ru reported a net profit of $198m in its year to December.
Another R6bn would be added by Naspers’s 68% stake in Stockholm Stock Exchange-listed Vostok New Ventures (VNV), owner of Avito, Russia’s largest online classifieds business. VNV’S net profit was $135m in its year to December.
Even when Naspers pulls off major deals, investors remain myopically focused on Tencent, says Cy Jacobs of 36ONE Asset Management. He points to Naspers’s sale of its Polish e-commerce business Allegro in October last year for $3.25bn.
“The deal was worth R45bn at the time,” says Jacobs. “If any other SA company had done a deal this big it would have made waves, but in Naspers’s case it was ignored by the market.”
Naspers is not the only company where investors appear focused on only one of its assets. Another is US group Altaba (formerly Yahoo), which has as by far its largest holding a 15% stake in Chinese e-commerce heavyweight Alibaba.
Based on Alibaba’s current market cap, Altaba’s stake is worth $53bn, yet its own market cap is only $50bn. With Altaba’s other interests added, including a 35.5% stake in Yahoo Japan, the total value of Altaba’s underlying assets is around $62bn.
Seemingly the key reason for Altaba’s big discount to the value of its underlying assets is tax it would have to pay should it sell its Alibaba stake. According to US publication Fortune, Altaba’s regulatory filings indicate that the tax rate on capital gains realised would be 36.5%.
But while an overhanging tax charge seemingly explains the big discount to Altaba’s underlying assets, it does not appear to do so in Naspers’s case.
“Naspers holds its stake in a complex nontaxable structure offshore,” says Jacobs. “Any capital gain realised on Tencent would not be taxable in Naspers’s hands.”
It adds weight to calls for Naspers to realise the value that Tencent has created for it. The latest call came from Switzerland-based fund manager Albert Saporta, who, in an open letter to Naspers CE Bob van Dijk, accused him and his executive of destroying $334m of shareholder value over the past three years.
For Naspers to dispose of its stake in Tencent is easier said than done. For one, finding a buyer with the financial muscle needed would be a tough call. Even if there were one, a deal may be impossible.
“The Chinese government would probably not allow another foreign company to acquire a large stake in Tencent,” says Jacobs.
This would also seem to rule out an unbundling of Tencent to Naspers shareholders.
Jacobs proposes an alternative deal. “Tencent could acquire Naspers,” he says. “With an offer pitched at, say, R3,400 per Naspers share it would get its own shares back at a 10% discount and Naspers’s other assets for free.”
A price of R3,400 would represent a premium of about 30% above Naspers’ current R2,600 share price.
Saporta’s call for Naspers to realise the value locked up in Tencent is far from the first. “Calls started coming not long after Naspers acquired its stake,” says Jacobs. “Wisely, Naspers management ignored them. They knew there was no other asset that would generate the growth Tencent has.”
Nadim Mohamed of First Avenue Investment Management believes Naspers must stick to its guns. “My preference is that they hold onto Tencent until the rump of the business is