CAPE TOWN – When the JSE began trading on Monday morning, Naspers opened at R2 001.50 per share. This was the counter’s first foray above R2 000, a price that is just below 88% higher than where it opened on April 14 last year.
It closed trade at R1 980 a share.
Going back two years, the surge in the share price has been even more remarkable. On April 12, 2013, Naspers opened at R565. In other words, it has almost doubled over each of the last 12 month periods.
This has also been a period of strong growth on the JSE itself. The FTSE/JSE All Share Index is up around 37% since April 12, 2013.
Not that long ago, this kind of performance would have been inconceivable in an environment where mining stocks have underperformed. One could argue that in the period leading up to 2009, commodity producers, led by the two diversified giants BHP Billiton and Anglo American, defined the character of the local market.
However, BHP is essentially flat over the last two years and Anglo American is around 22% lower. This shows how much the JSE has been dancing to a different tune – one that is increasingly played by the Naspers piper.
Although it is not the JSE’s largest stock by market capitalisation, it is the largest locally-listed counter that is not publicly traded anywhere else (although it does trade over-the-counter on the London Stock Exchange). For that reason it is comfortably the biggest constituent of the FTSE/JSE Shareholder Weighted Index (SWIX).
“It would be correct to say that Naspers is now the single most important stock in our market given its weighting in the All Share index of 9.9% and the SWIX at 12.8%,” says Abdul Davids, head of research at Kagiso Asset Management. “For the SWIX index in particular it has become a key contributor to performance given that the second biggest weighted share, MTN, is only about 7.0%.”
This is quite something, given that back in 2009 Naspers wasn’t even in the top ten of the SWIX. That index was was then still dominated by BHP and Anglo American.
However, the rise of Naspers, coinciding as it has with the sustained bear market for commodity stocks, has seen a material shift in the character of the JSE. One only has to glance at the portfolios of South Africa’s most high profile equity unit trusts to confirm that.
Naspers is the largest holding in the Coronation Equity Fund, the Old Mutual Investors Fund, the Investec Equity Fund, the Nedgroup Investments Rainmaker Fund, the SIM Top Choice Equity Fund, the Absa Large Cap Fund, the SIM General Equity Fund, the Old Mutual Top Companies Fund, the Momentum Top 25 Fund, the Stanlib Multi-Manager Equity Fund, and the Prudential Equity Fund.
The share also features prominently in the equity portfolios run by many of the country’s most successful boutique managers. It is the largest holding in the Anchor BCI Equity Fund, the Mazi Capital MET Equity Fund, the 36ONE MET Equity Fund, the Fairtree Equity Prescient Fund, the Mergence Equity Prescient Fund, the First Avenue SCI Equity Fund, the Truffle General Equity Fund, the BCI Equity Fund and the Bataleur Flexible Prescient Fund.
This is a clear indication that there is a fairly broad consensus amongst asset managers about the importance of the share.
However, where there is this kind of agreement, there is always the other side of the coin – the value managers who are instinctively fearful when the market is so euphoric. It is worth noting that some of the country’s most consistent value investors hold no Naspers stock in their funds at all. These include the PSG Equity Fund, the Marriott Dividend Growth Fund, and the Rezco Value Trend Fund.
According to Bloomberg, Naspers is currently trading at a historic price-to-earnings multiple of nearly 118 times, and a price-to-book of 10.58. Its dividend yield is just 0.21%.
These are hardly attractive metrics, and make it quite understandable why certain asset managers would be less than partial to it.
Although he wasn’t speaking specifically about Naspers, portfolio manager at Rezco Asset Management Rob Spanjaard told Moneyweb recently that: “We are currently seeing new ways to value things or justify higher valuations. And to some degree that is typical of a late bull market.”
The thing that investors need to consider, therefore, is what happens if Naspers doesn’t live up to expectations? Can it pull the market down in much the same fashion as it has lifted it up?
Given its current prominence, one has to believe that whatever happens to Naspers will materially affect the overall market. The good times have been good, but how long can they last?