Running out of steam
Naspers* is undoubtedly one of the darlings of the investment world, and those who’ve had the foresight and patience to sit with this investment have accumulated a lot of wealth over the years. While the share price has been relatively flat over the past year, it has gained nearly sixfold over the past five years, driven largely by its 34% holding in Chinese internet giant Tencent, owner of WeChat.
On 25 November, Naspers reported a 16% increase in revenue to $6.8bn in the six months to end September, while trading profit was up 21% to $1.47bn. However, its video entertainment assets, which include MultiChoice, have come under pressure as weakening currencies against the dollar in a number of its African markets weighed on margins. This, coupled with investment in ShowMax, its video-on-demand platform that was launched in August 2015 and competes with the likes of Netflix, led to trading profit falling by a third to $331m in the period.
With the aim of focusing on e-commerce going forward, the company also plans to expand in education software in Africa through Udemy and Brainly – US education technology companies. Although Naspers will seek further promising investments within the internet segment – it is placing a large focus on education technology businesses in particular – and has shown improved profitability in its e-commerce operations, the share price is revealing fatigued upward impetus. Are investors now finding the share price too expensive, with concerns about the outlook for Tencent (particularly if speculation is true that Facebook is looking at ways to re-enter the Chinese market) and ShowMax? How to trade it: Currently teetering on a key support level at 203 820c/share, breaching that level could see Naspers retest support at 188 300c/share. Below that level, an aggressive short would be recommended as Naspers could capitulate to 168 500c/share. Next support would be at 152 195c/share. However, if the 203 820c/share support level holds, Naspers could trade through 219 750c/share and recover its losses towards its 255 360c/share all-time high. In this case, refrain from going short below 203 820c/share.
*finweek is a publication of Media24, a subsidiary of Naspers.