China gets more than its two cents’ worth

Business Day - - THE BOTTOM LINE - ● Nick Wil­son ed­its Com­pany Com­ment (

While there are many other fac­tors at play, the past few trad­ing days have shown once again just how much of an in­flu­ence China ’ s Ten­cent has on the per­for­mance of the JSE.

Ten­cent plunged an­other 6.8% on Thurs­day, tak­ing its losses since Septem­ber 21 to 20%. Along with a broader global stock sell-off, that dragged the JSE fur­ther into the dol­drums, since part-owner Naspers tracks Ten­cent closely.

De­spite reg­u­la­tory chal­lenges hurt­ing its gam­ing busi­ness in China, an­a­lysts re­main over­whelm­ingly bullish about Ten­cent’s prospects. Even to­day, not one of the 50 an­a­lysts tracked by Bloomberg has a sell rec­om­men­da­tion on the stock.

Mo­men­tum Se­cu­ri­ties’ Fran­cois Stry­dom says Ten­cent is trad­ing at a five-year low on a one-year for­ward earn­ings mul­ti­ple, mean­ing that the re­cent sell-off pro­vides a good en­try point into the stock.

Stry­dom stresses that there is more to Ten­cent than gam­ing and WeChat. For in­stance, its cloud and ar­ti­fi­cial in­tel­li­gence busi­ness, which ser­vices com­pa­nies, has been do­ing well.

“Cloud ser­vices rev­enue dou­bled year on year in the last quar­ter …. This is also a key theme in our port­fo­lio with the likes of Ama­zon Web Ser­vices and Mi­crosoft’s Azure al­ready play­ing ma­jor roles in our ex­po­sure to the cloud com­put­ing theme,” he says.

Ten­cent is also tak­ing clear steps to drive ad­ver­tis­ing rev­enues, which are grow­ing 39%.

Con­sid­er­ing that the JSE now takes its cue from a com­pany in China ev­ery morn­ing, here’s hop­ing the an­a­lysts are right.

Af­ter touch­ing a record high of R13.49 at the end of Au­gust, the shares of Namib­ian in­vest­ment com­pany Trustco have nearly halved in value.

The sud­den de­fla­tion in Trustco’s share price ap­pears to co­in­cide with con­tin­ued ef­forts to re­struc­ture its debt load — a de­vel­op­ment that took a cu­ri­ous turn last week when an en­tity aligned to CEO, founder and ma­jor share­holder Quin­ton van Rooyen pro­posed mak­ing a loan to the com­pany of up to R1bn.

What is most strange is that Van Rooyen — via Next In­vest­ments — wants to raise part of the cap­i­tal sum to be loaned to Trustco by sell­ing a por­tion of his shares to cur­rent share­hold­ers and new in­vestors.

One might ar­gue that plac­ing Trustco shares at 700c/share is an eas­ier task than try­ing to ped­dle shares at a price north of R13/share. How­ever, the big­ger is­sue is why even go this route to re­cap­i­talise Trustco? Surely it would be sim­pler for Trustco to raise fresh cap­i­tal to cull its debt by is­su­ing new shares for cash? Do we as­sume there is lit­tle ap­petite from deep-pocket in­sti­tu­tional in­vestors, who are con­spic­u­ous in their ab­sence of Trustco’s share reg­is­ter?

One might also pre­sume Trustco could have turned key (and en­thu­si­as­tic) share­hold­ers in form of the US-based Riskowitz Value Fund (RVF) and Con­duit Cap­i­tal for fresh fund­ing.

RVF has in­vested heavily in Trustco’s un­listed sub­sidiary Le­gal Shield, and Con­duit was re­cently singing the praises of the Namib­ian com­pany in com­men­tary ac­com­pa­ny­ing its lat­est set of fi­nan­cials.

It seems, judg­ing by the crunched share price, that the mar­ket sus­pects Van Rooyen — who will have an op­tion to be paid back in Trustco scrip — is a len­der of last re­sort.


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