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Has Naspers/Prosus unlocked value?

‘The short answer to that is definitely no value unlocking. It’s not a market for holdcos’: Schalk Louw, portfolio manager at PSG Old Oak.

SIMON BROWN: I’m chatting now with Schalk Louw. He is a portfolio manager at PSG Old Oak. Schalk, good morning. I appreciate your time. You put out a tweet around the Naspers/Prosus value unlock. That value unlock, of course, is the discount of Naspers/Prosus to Tencent. Your maths? In a nutshell, has that value unlock unlocked value, or are we still sort of lagging the behemoth that is Tencent?

SCHALK LOUW: Oh, undoubtedly a lag. There’s no doubt about it … to point all the way to a lag. Once you put this in context, this has not been a market that’s been conducive for any holdco [holding company]. It’s actually funny. I think I should change my name from Mr Local to Mr Holdco.

The last time we actually chatted, we chatted about Remgro. Remgro’s holdco discount is widening. Since our last conversation it did narrow, but Naspers is just a crazy one because, Simon, it hasn’t just not unlocked value, it’s actually widening. In November I thought this can’t be right. I actually went and looked at it. And at that stage, when they brought an update, Prosus was trading at a 33% discount to its Nav and Naspers was trading at a 53% discount to its Nav. I thought, no, it can’t get any worse.

But today, even in a pretty serious bull market, if I can call it that, we’re trading up to 56% in Naspers. That’s massive, massive. And the effect that it had the market is even worse. I did a few calculations and I said, well, let’s just see, since the unbundling – which was pretty much September 10/11, 2019 – if you’d taken back then, and somebody pointed out last night on Twitter, where they said yes, but Schalk, it was fantastic. Luckily my Naspers and Prosus actually sort of carried me during this time.

That’s right because, during this time, these two shares added pretty much 51% in value. Now that’s a great return in a very short period of time – 51%. It’s not Bitcoin, but at least it’s a great return. But Tencent, over that same period in rand, would have given you 118% – massive, massive.

So the short answer to that is definitely no value unlocking. It’s not a market for holdcos. So that begs the question, firstly, is this sort of a value trap? Because usually, you can’t use the word Naspers and Prosus in the same sentence as the word “value”, because there’s just no way you pay these type of multiples for a company. But man, if you look at a 56% discount to Nav!

And just a final point, Simon, and this is actually the most interesting point because I actually looked at what the South African market did up to the last month over a 12-month period against the MSCI All Country World Index. It was actually quite interesting to note that the South African market is playing a bit of catch-up. I mean, this has been the dog of the investment industry for many years and now suddenly in the past six, eight months we saw it playing a bit of serious catch-up. So there was about a 3.6% difference between South Africa and the MSCI All Country World Index up to the end of January. Let’s just say over this period, just for interest’s sake, Naspers did 42%, and Prosus over this year period did 63%. Now there is already quite a big difference between 42% and 63%.

Over the same period Tencent in rand terms did 84%. If we did 84% that would have added another 5% to the JSE.

SIMON BROWN: That is massive. A last quick question. They are doing a share buyback. That’s patently not working. Do they just need to spin out Tencent? The problem is it’s their cash cow.

SCHALK LOUW: Yes. It’s a very difficult one. And I think that the answer is sort of in the instrument; they sold 2% a few years ago in the company. I don’t think they’re going to sell any more. The hard facts are when we look at let’s call it the value of the Tencent position – now I’m talking about Prosus – we’re looking at a position or let’s call it a holding for Prosus of $284 billion. When you look at the total size of Prosus, now we’re talking the total market cap, that’s not even $200 billion. So Tencent is such a big part Naspers/Prosus. They will need to address this. They will need to soon start looking at it because now you are sort of seeing the tail wagging the dog.

I think the only way of really unlocking value is at least if one discounts one even further, they will need to look at maybe giving back some shares or selling.

SIMON BROWN: Yes. Make a plan. We will leave that there. Those numbers are absolutely staggering. Truthfully, they’re quite scary. We are 5% behind. I would like that 5%. Schalk Louw, portfolio manager at PSG Old Oak, I  appreciate the early morning.



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Oh Really – So what should buy Schalk – Steinhoff?

Management needs to sort out the A share structure. No place for it any longer.

End of comments.



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