Naspers ‘of­fers good value’

An­a­lysts see buy­ing op­por­tu­nity as share price hits low­est level in 15 months after main­stay Ten­cent’s losses

Business Day - - FRONT PAGE - Nick Hedley Se­nior Busi­ness Writer hed­leyn@busi­nesslive.co.za

The sell-off of Naspers shares, which have fallen to their low­est in 15 months, could be a buy­ing op­por­tu­nity, say an­a­lysts. Ow­ing to its shrink­ing in­vest­ment in Chi­nese in­ter­net gi­ant Ten­cent, Naspers has slipped to its low­est val­u­a­tion since July 2017. The stock fell 6.5% to R2,656.89 on Wed­nes­day, drag­ging SA’s main bourse an­other 2.5% lower.

The sell-off of Naspers shares, which have dropped to their low­est level in 15 months, could be a buy­ing op­por­tu­nity, an­a­lysts sug­gest.

Ow­ing to its shrink­ing in­vest­ment in Chi­nese in­ter­net gi­ant Ten­cent, Naspers has slipped to its low­est val­u­a­tion since July 2017. The stock, which ac­counts for nearly a fifth of the JSE, fell 6.5% to R2,656.89 on Wed­nes­day, drag­ging SA’s main bourse an­other 2.5% lower.

That brings Naspers’s yearto-date de­cline to 26%, though that num­ber is even worse in dol­lar terms.

Its main­stay in­vest­ment, Ten­cent, has slipped 31.5%, the big­gest loss in mar­ket value of any com­pany glob­ally in 2018, ac­cord­ing to Bloomberg.

Ten­cent’s pre­cip­i­tous fall is the re­sult of dis­ap­point­ing firstquar­ter earn­ings, tighter reg­u­la­tion in China de­lay­ing ap­proval for new games and the trade war be­tween that coun­try and the US, said Nick Crail, fund man­ager at Ashb­hur­ton In­vest­ments. The trade war was tak­ing its toll on China’s tech­nol­ogy sec­tor, with e-com­merce gi­ant Alibaba hav­ing re­treated nearly 30% since its Jan­uary highs, Crail said.

The US tech sell-off also had a knock-on ef­fect.

“As US rates have started to rise there has been a sell-off in growth as­sets like Naspers with value stocks per­form­ing sig­nif­i­cantly bet­ter.”

How­ever, Crail said that while the Naspers share price was likely to con­tinue track­ing Ten­cent’s closely “we see sig­nif­i­cant value in the Naspers share price at these lev­els”.

In­vestor fears about the trade war were “over­done”, while gam­ing ap­provals in China were ex­pected to re­sume, he said. How­ever, Ten­cent’s third-quar­ter num­bers would prob­a­bly be “weaker than ini­tially ex­pected”.

In­de­pen­dent in­vest­ment an­a­lyst Mark Ingham said in a note that while neg­a­tive sen­ti­ment in China was weigh­ing on Ten­cent the com­pany was “in a sound fi­nan­cial po­si­tion”.

Ingham said the group’s bal­ance sheet re­mained strong and earn­ings per share were ex­pected to grow at a com­pound an­nual rate of 22% over the next three years.

Based on for­ward earn­ings pro­jec­tions, Ten­cent was now “the cheap­est it has been for a long time”.

But long-term in­vestor Bell­wood Cap­i­tal is scep­ti­cal about Ten­cent’s abil­ity to main­tain its high growth rate.

Bell­wood was con­cerned that Ten­cent’s debts could stack up after a series of ac­qui­si­tions and in­vest­ments, and it was also wary about com­plex struc­tures be­hind Chi­nese tech­nol­ogy firms, said David Nathanson, a global eq­uity spe­cial­ist at the in­vest­ment man­ager.

Naspers’s val­u­a­tion dis­count rel­a­tive to its Ten­cent in­vest­ment re­mains stub­bornly high, de­spite CEO Bob van Dijk’s as­ser­tions that the group is tak­ing steps to ad­dress the is­sue.

/Bloomberg

Fall: Naspers CEO Bob van Dijk has seen the group slip to its low­est val­u­a­tion since 2017.

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