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Naspers leant on Investec analyst David Smith to ‘recall’ a negative research report about it. Instead, he stuck to his guns

It’s not often that a mild-mannered accountant gets to stare down a bullying trillionrand company. Yet David Smith, an equities analyst at Investec Securities, has resisted a full-throttle onslaught from Naspers, which took exception to a 30-page report he wrote on January 22 that failed to flatter the R1.4 trillion tech goliath as it presumably might like.

Smith argued that Naspers isn’t as grievously undervalued as some say, and it “deserves” to trade at a 30% discount to its assets. He also argued that its internal rate of return is closer to 11% than the higher 17% Naspers puts it at — an important gap, considering Naspers’s cost of capital is 13%.

It wasn’t flattering, sure. But equities analysts are not there to soothe egos. Rather, they’re meant to act independently, their research contributing towards price discovery and a more transparent market.

The thing is, for the past two years the gains in Naspers’s share price have been entirely due to its high-flying Chinese investment, Tencent. Embarrassingly so, actually: Naspers’s 34% of Tencent is now worth R2.1 trillion — far more than Naspers’s entire

R1.4 trillion valuation. Now, that’s some discount.

Some investors are holding thumbs that the rest of Naspers’s assets — which include Multichoice and e-commerce businesses like Mail.ru and Flipkart — will “rerate” to their true value, to narrow the discount.

But Smith has “limited conviction” on this point. In fact, he said, a 30% discount is “deserved” due to Naspers’s tendency to issue shares at the drop of a hat.

“Over the past 11 years, Naspers’s shares in issue have increased by 49%. Approximately a third of the

Equities analysts are not there to soothe egos. Their research is meant to contribute towards a more transparent market