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Demand for online services drives Naspers’ shares higher

Naspers, Prosus advancing during grim quarter.
Image: Bloomberg

A bad start to the year for stocks? That hasn’t applied to Naspers, as the coronavirus confined hundreds of millions of consumers indoors, driving demand for online services and entertainment.

Shares in Africa’s most-valuable company have advanced 11% since 2020 began, the best quarterly performance in a year. In stark contrast, the broader South African benchmark index had lost 24% by Monday’s close, set for its worst quarter on record.

The unprecedented reliance on digital products and platforms prompted by the pandemic has boosted Chinese internet giant Tencent, in which Naspers has a 31% stake. Naspers unit Prosus, which holds the Tencent stake, has gained 17% in Johannesburg this year.

“Tech firms are less affected by the shutdowns, because for some of them business still continues,” said Peter Takaendesa, head of equities at Mergence Investment Managers in Cape Town.

Despite the out-performance, by at least one measure Naspers is trading at an increasing discount. While Tencent has gained 1.7% in dollar terms this year, Naspers has declined 14% as the rand weakened. That has widened Naspers’ discount to its net asset value to 52% as of Tuesday, according to Mike Gresty, a money manager at Johannesburg-based Anchor Capital.

While narrower than the 55% reached earlier this month, the discount remains “significantly wider than the range it has been historically,” Gresty said. The benchmark index has dropped almost 40% this year in dollar terms.

The sector is benefiting from the current “work from home” environment, but a prolonged outbreak will test investors’ patience, Mergence’s Takaendesa said.

“If this goes on, and we have another two or three months of lockdown, the market will have to come off even more, and tech stocks will not be immune,” he said. “But so far, the sector is proving very resilient.”

© 2020 Bloomberg

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