Multibillion MultiChoice leaves the mothership

● MultiChoice could to be the third-largest primary listing on the JSE in a decade when it makes its debut on the bourse next month.

The market is expected to value Naspers’s pay-TV unit at between R40bn and R75bn, which would put MultiChoice in the league of Steinhoff Africa Retail, (now called Pepkor) and just behind Bidcorp in terms of size for a recent listing in Johannesburg.

Naspers last year announced it was unbundling MultiChoice to shareholders and this week cast more light on the company’s standalone sales, profit and dividend numbers.

MultiChoice, headquartered in Randburg, Johannesburg, only a stone’s throw from the house where it tapes reality show Big Brother, generated R47bn in revenue, with a trading profit of R6bn and core headline earnings of more than R1bn. It also plans a dividend of R2.5bn for 2020.

A business with modest growth but high cash flow, MultiChoice will likely be compared to companies in the telecommunications category, such as Vodacom and MTN, said Old Mutual Invest analyst Philip Short.

If it had a similar dividend yield to Vodacom, MultiChoice could be valued at around R40bn, Short said, which would make it about the size of Reinet Investments and a little bigger than clothing retail groups Truworths and TFG.

Blue-chip status

The JSE confirmed MultiChoice’s blue-chip status, saying in a statement the company will slot into the top 40 index from the start.

When a discounted cash-flow model is used, MultiChoice could list with a market capitalisation of as much as R75bn, Short said. This takes into account that other parts of Sub-Saharan Africa have weighed on earnings due to weak growth and allows for an uptick in future years.

Investec Asset Management portfolio manager Hannes van den Berg agreed with this valuation which would make MultiChoice more the size of Aspen Pharmacare.

But R75bn is still barely a ripple in the deep pool that is Naspers.

The newspaper publisher, which started in 1915 with Die Burger in Cape Town, has grown to a R1.3-trillion behemoth with operations in 120 countries.

It reinvented itself in the 2000s with a string of investments in internet businesses under then-CEO Koos Bekker.

One of his punts — shelling out $32m in 2001 for a 33% stake in China’s Tencent — paid off in a big way.

Tencent is a true tech giant and serves as a Chinese version of Uber, WhatsApp, Mr Delivery and an online games hub. It has been innovative in selling services to the world’s most populous nation on their smartphones, unleashing breathtaking growth.

But in recent years, Naspers management has faced criticism from investors for not rejigging a corporate structure that trades at a hefty discount to the sum of its investments. Its stake in Tencent alone is worth nearly a quarter more than all of Naspers.

This means investors see the likes of MultiChoice, the print media business and the ecommerce assets as contributing negative value to the Naspers share price.

‘Pure internet play’

Naspers has to some extent been a victim of its own success. But management last year started making moves to address the problem. First, Naspers sold a sliver of its Tencent stake — about 2% of the tech giant — but was quick to reassure investors that it will hold on to the rest of its most valuable asset for the foreseeable future.

Naspers also announced that the cash flow from its e-commerce businesses was strong enough to sustain itself. Before, MultiChoice was the cash cow used to fund the ecommerce unit.

The next step will be in five weeks, when Naspers plans to unbundle MultiChoice to shareholders.

“From a sentiment point of view this is very positive for Naspers as it shows that the group doesn’t need the cash flow from payTV to sustain its investments in its fast-growing internet businesses,” said Short. It also positions Naspers as a “pure internet play” in the minds of investors.

MultiChoice waxed lyrical about its own prospects.

The market for pay-TV on the continent, where it has nearly 14-million households signed on, is about 40-million subscribers.

Live international sporting events and Hollywood movies and series will still be on

It shows Naspers doesn’t need cash flow from pay-TV to sustain its … internet businesses

Philip Short

Old Mutual Invest analyst

the menu as it aims to take a larger slice of the market.

But MultiChoice is also pushing hard for local material, using its M-Net unit to generate the content.

Local content

“The group invested R2.8bn in local general entertainment content (in addition to R1.3bn on local sport) and improved the ratio of spend on local content to total general entertainment content from 34% to 38%,” MultiChoice said.

Naspers is following a trend of big groups unbundling their assets to try to unlock value for shareholders.

Bidcorp was spun out of Bidvest in 2016 and hit the market with a value of about R91bn, and Steinhoff in 2017 listed its African assets separately in Steinhoff Africa Retail, which at the time was valued at R76bn.

Before that, the most recent transaction in this league was Telkom’s unbundling of its stake in Vodacom in 2009, valuing the mobile operator at R93bn.