This may be a good time to get on board
Naspers, the undisputed JSE heavyweight champion, weighs in with a market cap of R1.45 trillion. But its market cap should arguably be R450m (31%) higher than it is. That would lift its market cap to R1.9 trillion, putting it in line with the value of its 31.17% stake in Tencent, a Chinese internet, gaming and tech giant.
Looking at the market cap conundrum another way, if the market is valuing Naspers’s holding in Tencent at its full R1.9 trillion, it is placing a negative value of R450m on its other assets. They are assets which in Naspers’s year to March generated revenue of $3.9bn with the bulk ($3.65bn) from e-commerce interests.
“Shareholder pressure on Naspers’s management to take action to unlock value is mounting,” says Evan Walker of 36One Asset Management.
Not that such calls are new. “They have been around since Naspers’s share price was R200,” says Walker. That was 10 years ago. Naspers’s price is now R3,370.
Solutions punted by analysts include splitting Naspers into two separate companies, one housing Tencent; one its other assets. Another has been for
Tencent to acquire Naspers.
There have also been calls for Naspers to sell its entire stake in Tencent.
But finding a buyer with the financial muscle would be a tough call. If one were found the Chinese government would probably block any move that would place such a large interest in the strategically important Tencent into foreign hands.
Naspers CEO Bob van Dijk has acknowledged that the value gap is too high and has committed Naspers to investigate “structural options”.
Where Naspers has been acting is in accumulating substantial cash resources.
In March, it announced the sale of 2% of its stake in Tencent for $9.76bn. This left Naspers sitting on net cash of $8.2bn at the end of its past year. It’s a sum set to grow.
In May Naspers announced that it has agreed to sell its 11.18% stake in Indian e-commerce group Flipkart to Walmart for $2.2bn. Flipkart was a winner for Naspers, generating an internal rate of return of 32% on the $616m it has invested in the Indian group since acquiring its stake in 2012.
Since its year end Naspers has already closed a big deal: a 22.75% stake in German-headquartered online food delivery group Delivery Hero for $775m. It has the makings of another winner investment.
But for now, and probably many years to come, Naspers is dominated by Tencent which, in the past year, contributed a trading profit of $3.675bn on an economic interest basis.
Tencent, in which Naspers bought its stake in 2001 for $33m, keeps powering ahead. In its year to December Tencent upped revenue by 56% to $36.4bn. Profit attributable to shareholders grew by an even stronger 74% to $10.94bn.
In the first quarter of Tencent’s new year revenue was up 48% to $11.7bn. Profits attributable to shareholders rose 61% to $3.7bn.
With Naspers’s price down 17% from November, when it was at its highest yet, this could be the ideal time to take the plunge. ●