Testing new levels
And maybe investors’ nerves as well
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