Naspers and Elon’s Tesla
INVEST OR IGNORE: THIS IS THE BIG DEBATE AMONG FUND MANAGERS
Koos Bekker and Musk have been described as ‘visionary’ leaders, yet ...
JSE-listed Naspers has more in common with US electric vehicle producer Tesla than meets the eye. Both Naspers’ Koos Bekker and Tesla’s Elon Musk have been described as “visionary” leaders, yet they’ve been under fire for what some believe are corporate governance failures. Both companies have been criticised for capital allocation decisions and lack of disclosure.
Naspers
For SA investors, Naspers has become a crucial stock, as its weight in various local indices has grown significantly.
While its impact on the SA market can’t be ignored, fund managers are divided about its future fortunes.
At a recent Glacier International Navigate Seminar, Dodge & Cox’s Kevin Johnson said there were a couple of reasons for the firm’s belief that Naspers was a compelling investment, even though it reduced its position between December and March.
“The management team is quite strong. We think of ourselves as value investors and as we look at Naspers on a sum-of-the-parts basis, it is very reasonably valued.”
The value of Naspers’ holding in Tencent was worth more than the total market value of Naspers. “You are getting the rest of Naspers at a significant discount.”
Johnson said the firm’s view is the rest of Naspers has value, although there are debates about how much it’s worth.
But Investec Asset Management’s Rob Forsyth – with no Naspers exposure – isn’t convinced. The team analyses a company’s business model, how strong it is, if it’s growing market share, what portion of its profits it converts to cash, how it spends its cash and its valuation.
While Tencent is a strong company with a fantastic business model, longer term the performance of a lot of technology companies is expected to slow, as there’d be heightened competition for people’s time and platforms would start cross-competing, he said.
The team also had reservations about capital allocation at Tencent (and Naspers) and about its valuation given its growth outlook. Since 1955, no company with revenue of over $25 billion has managed to grow its top line over 20% for ten consecutive years.
Yet, the team isn’t opposed to investments in the tech space and had exposure to NetEase, Tenpay and Visa.
Tesla
Baillie Gifford’s Iain McCombie acknowledged that Tesla’s a controversial stock, but said only about 1% of its Managed Fund is invested in it.
But he said history showed that when trends change it often happens within a relatively short space of time.
“I accept the fact that Tesla has a lot of risks to it, but if you are a sceptic, what if you are wrong? Because that has profound implications for a lot of companies.”
Schroders’ Alex Tedder said in terms of evolution, electric vehicles are coming, but his team doesn’t believe Tesla will be at the forefront.
He said Tesla was burning a lot of cash and at some point, it would have to raise equity. Although it would likely be able to do so short term, that wouldn’t solve the issue in the long run.