Tencent stake boosts Naspers
Various factors have driven the media giant’s rally over the past months.
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”.
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.