Test­ing new lev­els

And maybe in­vestors’ nerves as well

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

WITH A SHARE PRICE that’s gained nearly 50% over the past year, Naspers (owner of Fin­week) has re-en­tered the top 20 shares on the JSE ranked by mar­ket cap­i­tal­i­sa­tion. Which, given the of­ten volatile his­tory of me­dia com­pany shares, might be mak­ing in­vestors ner­vous.

But some of the top me­dia an­a­lysts and fund man­agers don’t seem con­cerned, ar­gu­ing the share has de­fen­sive qual­i­ties due to its large ex­po­sure to pay-TV and fur­ther earn­ings po­ten­tial from new tech­nol­ogy.

A de­tailed re­port by Ab­dul Davids, se­nior an­a­lyst at Al­lan Gray, con­cludes that Naspers is trad­ing at a “sub­stan­tial dis­count” to its in­trin­sic value. “In ad­di­tion, in­vestors are not pay­ing for the com­pany’s in­vest­ment in new tech­nolo­gies that could con­trib­ute sub­stan­tially to earn­ings in the fu­ture,” Davids says.

Gavin Jou­bert, a fund man­ager at Coro­na­tion Fund Man­agers, also re­mains bullish on the share, say­ing it’s un­der­val­ued and he sees “fair value” at around R200/share.

Re­cent share price move­ments sug­gest the mar­ket is rais­ing the value stakes due to ac­qui­si­tions Naspers has made. A week ago, the com­pany an­nounced it had bought 30% of MXit Lifestyle, South Africa’s unique in­stant-mes­sag­ing ser­vice.

A few days ear­lier, it con­firmed the ac­qui­si­tion of 30% of mail.ru, an In­ter­net ser­vice in Rus­sia, for US$165m (about R1,2bn).

Typ­i­cally, in­vestors start to get a lit­tle ner­vous of me­dia shares in a ris­ing in­ter­est rate cy­cle. Ad­ver­tis­ing spend usu­ally forms a large por­tion of rev­enue, and when the econ­omy tight­ens, there tends to be less con­sumer and cor­po­rate spend­ing.

How­ever, Davids ar­gues that pay-TV, which com­prises about 84% of Naspers’s to­tal op­er­at­ing profit of R3,22bn, is re­silient to eco­nomic down­turns. “Naspers’s pay-TV sub­scriber base is rel­a­tively in­sen­si­tive to price in­creases, since ac­cess to pay-TV tends to be a lifestyle choice with very few qual­ity in-home en­ter­tain­ment al­ter­na­tives,” he says.

Jou­bert, who notes that un­like other me­dia groups Ad­spend only ac­counts for around 14% of Naspers’s earn­ings be­fore in­ter­est, tax and amor­ti­sa­tion (Ebita), ar­gues that eco­nomic down­turns can even be “slightly pos­i­tive” for pay-TV as­sets as con­sumers spend more time at home.

But sen­ti­ment could also be a big driver of the share price and that can be dan­ger­ous. Peter Ar­mitage, a fund man­ager at In­vestec Private Clients and highly rated as a me­dia an­a­lyst, calls it a “clas­sic case” of mar­ket sen­ti­ment. “Some years ago, when Naspers’s share stood at R16, it was out of favour, noth­ing man­age­ment seemed to do was right. Now it’s at the other end of the spec­trum, they can’t do any­thing wrong.”

That brings back mem­o­ries of the steamy days be­fore the tech­nol­ogy, me­dia and tele­coms melt­down early in 2000. In Fe­bru­ary that year, Naspers reached a high of R90/ share. It plunged as low as R12,30/share, and took more than five years to get back to the R90/share level. It’s his­tory now, but a lit­tle cau­tion might not be a bad thing.

Down­turns good for pay-TV. Gavin Jou­bert

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