Ten­cent stake boosts Naspers

Var­i­ous fac­tors have driven the me­dia gi­ant’s rally over the past months.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za *fin­week is a pub­li­ca­tion of Me­dia24, a sub­sidiary of Naspers.

therise of Naspers*, Africa’s largest com­pany by mar­ket value, saw its mar­ket cap­i­tal­i­sa­tion ex­ceed R1tr for the first time on 31 May, driven by gains in un­der­ly­ing in­vest­ment Ten­cent.

The in­ter­net, e-com­merce, video en­ter­tain­ment and me­dia group has re­turned 25.8% to share­hold­ers over the past year. Over the past five years, the stock is up six-fold, from R381.95 in June 2011 to R2 295 a share at the time of writ­ing, ac­cord­ing to INET BFA data.

The share is trad­ing at a price-to-earn­ings ra­tio (P/E) of 110, mak­ing it one of the most ex­pen­sive shares on the JSE’s Top40 Index based on this met­ric.

The rally in Naspers shares has been largely driven by its 34% stake in Chi­nese in­ter­net com­pany Ten­cent, which offers mo­bile gam­ing and mes­sag­ing ser­vices in­clud­ing WeChat and QQ.

Ten­cent, which was founded in 1998, has grown into the big­gest in­ter­net com­pany in Asia. Naspers ini­tially bought half of Ten­cent in 2001, in­vest­ing $32m in the start-up. The stake has since been di­luted, and Ten­cent’s mar­ket cap­i­tal­i­sa­tion at the time of writ­ing was $214bn.

Naspers’s suc­cess is not all at­trib­uted to Ten­cent, as it con­tin­ues to build its port­fo­lio in the on­line world.

Its other ma­jor in­vest­ments in­clude a 29% stake in Rus­sian in­ter­net group Mail.ru, which is val­ued at around $1.2bn.

While the group has had much suc­cess in­vest­ing in early-stage in­ter­net com­pa­nies over the years, rat­ings agency Fitch in May flagged its high de­vel­op­ment spend on e-com­merce and pay TV as rea­sons why the group can­not qual­ify for bet­ter credit rat­ings.

Naspers has, for ex­am­ple, been in­vest­ing in ShowMax, a sub­scrip­tion video-on­de­mand ser­vice that is aimed at com­pet­ing with Net­flix.

The com­pany’s South African pay TV busi­ness re­mains cru­cial for the group, as it gen­er­ates most of its op­er­at­ing cash flow from this busi­ness, Fitch said.

The busi­ness showed some strain in the first six months of the fi­nan­cial year as it strug­gled to raise sub­scrip­tion fees to off­set the im­pact of a de­clin­ing rand against the dol­lar, in which it pays for much of its con­tent.

The group is set to re­lease its fi­nan­cial re­sults for the year to end March on 24 June. This will be the first set of re­sults that is re­ported in US dol­lars, rather than rand.

Naspers, which was founded in 1915 in Stel­len­bosch, has grown into a busi­ness with oper­a­tions in more than 130 coun­tries.

It said it cur­rently earns more than 70% of rev­enue on an eco­nomic interest ba­sis (which in­cludes the group’s pro­por­tion­ate share of the rev­enue of as­so­ci­ates and joint ven­tures) from outside SA, while its share­holder base is now also largely com­prised of for­eign in­vestors “to whom fi­nan­cial re­port­ing in rand is of lim­ited rel­e­vance”.

What next?

Pos­si­ble sce­nario: Naspers has re­cently bro­ken out of an in­verted head-and-shoul­ders pat­tern – a bullish con­tin­u­a­tion pat­tern – con­firmed above 215 940c/ share and sub­stan­ti­ated by the 3-week rel­a­tive strength index (RSI) over­com­ing the up­per slope of its sym­met­ri­cal tri­an­gle. The up­side tar­get of this break­out is si­t­u­ated at 263 285c/share. The over­bought RSI should trig­ger a re­ver­sal to af­ford­able lev­els to 209 000c/share at most. A re­ver­sal above that level should see Naspers re­sume its up­trend to its near- to short-term tar­get. Al­ter­na­tive sce­nario: The ob­jec­tive of the bullish pat­tern would be negated below 188 300c/share. Alarm bells should sound below 203 000c/share.

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