Naspers’ riddle: how to make money from its other assets?

FIFTEEN years ago, a South African media company invested $34 million in an obscure Chinese internet developer. Today that stake is worth $88 billion (R1trillion).

All Naspers, now Africa’s most valuable company, has to do is figure out how to make money from its other properties: the whole company is worth only $72bn, less than its stake in Shenzhen-based Tencent Holdings. Investors aren’t impressed with Naspers’ operations in pay-TV, newspapers and e-commerce in South Africa, Russia and India.

To win them over, chief executive Bob Van Dijk has launched an aggressive push to sell some assets, invest in others and expand operations, such as classified advertising, into new markets.

The valuation gap was an “opportunity for long-term investors who have done their homework” on Naspers’s e-commerce components, said Ruan Stander, a money manager at Allan Gray, which owns Naspers shares.

“The headline accounting numbers can mislead you into thinking these businesses are failing”, yet they needed a period of loss-making to establish themselves in the marketplace, he said. Boost presence On Tuesday, Naspers said it would combine Ibibo, a travel business in India, with competitor MakeMyTrip to boost its presence in the country.

Last week, Naspers agreed to sell Allegro, a Polish online auction site, for $3.25bn, saying the sale was “consistent with the group’s strategy to find and unlock value for shareholders”.

Shares rose after both announcements, bringing Naspers’s gains in Johannesburg this year to 7.1 percent.

Naspers and Tencent will together be the largest shareholders in MakeMyTrip, owning a 40 percent stake.

The company also hired Citigroup managing director Fahd Beg as the deputy chief investment officer, people said, a move that boosted the company’s team of executives scouring the planet for the next Tencent-style success story.

To make more money from its operations, Naspers will have to overcome a threat to its satellite TV business from new competitors and e-commerce activities that lost $693m in the last financial year. Companies, such as classified-ad business OLX, operate in 40 countries yet only 10 are cash-generative, according to Bloomberg Intelligence media analyst Tal Smoller.

Naspers-owned Flipkart might be India’s biggest online shopping hub, yet the e-commerce market in that country was still nascent, she said.

“The key to Naspers doing more than merely tracking Tencent’s performance will be the extent to which they can successfully monetise these e-commerce assets,” said Sean Ashton, a chief investment officer of Anchor Capital. The whole company is worth only $72 billion, less than its stake in Shenzhenbased Tencent Holdings.

Naspers, which started out as a newspaper publisher in 1910 before expanding into TV in the 1990s, bought the Tencent stake under then-chief executive Koos Bekker in 2001. Since then, Tencent has developed WeChat, an instant messaging app that has 805.7 million monthly active users. Even China’s economic slowdown isn’t hurting its fortunes.

“More advertisers might choose to place ads with Tencent in times of downturn, since its platform might be more effective than offline channels,” said Yu Jianpeng, a Hong Kong-based analyst at ICBC International Research. “One of Tencent’s biggest strengths is the traffic it generates as a social media platform, making it an attractive game distributor.”

Though Tencent accounts for half of Naspers’ revenue and almost all its earnings before interest, taxes, depreciation and amortisation, the South African company does have some successful operations. Its pay-TV business, MultiChoice, has close to 10 million subscribers in 49 sub-Saharan African countries and broadcasts international sports and hit dramas

Game of Thrones Walking Dead.

Naspers has stakes in about 45 technology and media companies around the world, including US online-learning provider Udemy and Souq. com, known as the Amazon. com of the Middle East. The Dubai-based online retailer was planning to sell a block of about 30 percent that would give the company a value of at least $1.2bn, people with knowledge of the matter said last month. The Good results “Our focus remains on delivering long-term value and sustainable profits,” said Meloy Horn, Naspers head of investor relations. “We expect sustained good results and increased contributions from our fast growing e-commerce operations to rectify the discount” to Tencent.

But MultiChoice faces new competition from entrants such as Econet, owned by Zimbabwean businessman Strive Masiyiwa. StarTimes, a fast-growing Chinese rival, has also enjoyed “rapid growth on the continent by targeting the mass market with bouquets for as little as $3”, said Priscilla Tirvengadum, an analyst at Dataxis Africa.

Naspers shares closed 2.86 percent up at R2 335 on the JSE yesterday. – Bloomberg