New kid on the block is challenging MultiChoice
MultiChoice remains a small contributor to the overall portfolio of Naspers, but is an integral part of its operations, according to analysts who specialise in tracking Naspers’s performance.
Renier de Bruyn, an analyst at Sanlam Private Wealth, said MultiChoice only accounted for about 5% of the valuation of Naspers, but contributed the majority of the group’s free cash flow to fund its new ventures.
“Tencent dominates Naspers’s valuation, but only pays a relatively small dividend to Naspers, so Naspers is fairly reliant on MultiChoice to support its other businesses that are still in their investment phase,” he said.
Tougher competition
Competition has lately intensified in the payTV market in Africa — with new entrants including Kwesé TV and over-the-top operators) such as Netflix that offer streaming services — posing a threat to Naspers MultiChoice business.
MultiChoice Africa CEO Brand de Villiers said the operator had noted that the video entertainment market in sub-Saharan Africa had “always been extremely dynamic” with the entry and departure of numerous operators on multiple platforms, including OTT, direct-to-home and digital terrestrial television — indicating the pay-TV giant was in for the long haul.
“The current proliferation of OTT internet-based players presents a challenge as these operators are not regulated and can conduct business without having to comply with any of the regulations and legislation, or payment of fees and taxes that more traditional operators have to comply with. This has resulted in an uneven playing field in favour of the OTT players,” he said.
Adapting in the face of competition is what MultiChoice needs to remain a market leader, according to Adrian Cloete, an analyst at PSG Wealth.
Investors still keen
“The Naspers business has potential especially when it manages to reach scale in those African countries where it is heavily invested, which means a long-term view has to be taken over the operations in Africa which presently are under strain from cur- rency volatility,” he said.
“But in the longer term the Naspers business has a future, despite the fact that revenue in US dollars is flat and content costs have increased because of other competitors.”
Cloete said investors’ attraction to Naspers would remain as it also directly contributed about 20% to the valuation of the JSE All Share index.
“Even if some investors may not fully understand the way the internet-based business works, they are still keen on snapping up the stock, as by extension you are also buying into Tencent, which contributes between 85% and 89% of Naspers’s valuation,” he said.