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Naspers, a fish still too big for its JSE pond

But there isn’t much management can do about it.
Tracking the Top 40 would make most portfolios uncomfortably overweight in only two shares – Naspers and Prosus. Image: Dwayne Senior, Bloomberg

Whenever Naspers and Prosus management address any of their stakeholders – this time a quick update on the group’s operations – somebody will quickly pose the question of what management is doing to address the discount of the Naspers share price to its underlying net asset value (NAV).

It’s a question that Prosus and Naspers CEO Bob van Dijk is probably tired of hearing, and one that he has no answer to.

The separate listing of Prosus on the Amsterdam stock exchange in September 2019 to house Naspers’s valuable Tencent interest and its other international internet businesses, such as the big and fast-growing food delivery operations, did little to unlock the not-so-hidden value.

If anything, it had the opposite effect. Investors piled into the new share and awarded Prosus a sterling rating, resulting in market capitalisation which attracted the attention of the world’s largest fund managers.

The listing of Prosus actually put a firm value on the international assets and highlighted the Naspers discount to its NAV.

A brief look at the figures explains local shareholders’ dilemma. Current share prices value Naspers at R1 653 billion and Prosus at nearly R3 137 billion. The 76% that Naspers owns in Prosus alone is worth R2 384 billion – way more than Naspers’s market capitalisation.

Then the rest of the SA assets, including well-known companies like Media24 and Takealot, are not worthless.

Nobody can blame Van Dijk for not having a convincing answer to the often-repeated difficult question.

Challenging

The truth is that Naspers is still too big for the JSE. The NAV problem is getting worse as Prosus grows.

“The discount to NAV is one of the key priorities for management and the board,” says Van Dijk. “The listing of Prosus narrowed the discount, but since then it has widened again.”

He alluded to the real problem, saying that Prosus attracted global investors after its listing in the Netherlands.

Prosus is one of the largest consumer internet companies in the world with its operations reaching 1.5 billion people, and growing.

The Covid-19 pandemic has accelerated the trend towards remote working and online shopping, entertainment and education, says Van Dijk. “Meanwhile, Tencent is delivering great numbers. China is the world’s biggest internet market.”

The group’s growth strategy is also popular with investors at a time when growth stocks, especially technology companies, are very fashionable.

On the JSE, Naspers just can’t keep up with the increase in the Prosus share price as local shareholders cannot keep up with the international investment community. Tracking the Top 40 would make most portfolios uncomfortably overweight in only two shares – Naspers and Prosus.

Even the world’s largest beer brewer, Anheuser-Busch InBev, comes third in terms of market cap on the JSE.

How Naspers compares with some of the big favourites on the JSE

Market cap (Rm)
Prosus 3 136 943
Naspers 1 653 174
AB InBev 1 590 937
British American Tobacco 1 306 906
BHP Group  988 893
Anglo American  788 141
Richemont  748 443
Sasol  129 787

Source: Moneyweb database

Not only is Naspers huge, it’s also growing. Thanks to Prosus and Tencent, the share price keeps on increasing.

Naspers ran from below R400 per share in 2011 to a high of R3 600 at the time of the listing of Prosus in 2019 when it fell back to just above R2 000 due to the Prosus unbundling. Since then, Naspers has increased again to wipe out this “loss”. Yesterday it was sitting at around R3 800 while management was giving its update.

Prosus increased steadily since its listing in September 2019, rising by more than 60% from its listing price of R1 200 to the current R1 930.

The other big players on the JSE did not do so well

AB InBev has been halved since a high of R1 830 in 2016, now seemingly heading to below R900.

British American Tobacco South Africa (Batsa) recovered from is very low levels in 2011 to a high of just below R970 in May 2016, but fell back during the last few years to the current levels of around R530.

The commodities cycle bumped BHP down from R370 in 2014 to a low of less than R150 at the beginning of 2016. It has since recovered to R470 to push its market cap to R988 billion.

Sasol, one of the most widely-held shares on the JSE, has had a nice recovery from below R100 to above R200, but its market cap is less than 10% of that of Naspers.

The steady and steep rise in Naspers shares has seen it pulling ahead of the rest of the pack, despite the growing increase in the discount to its NAV.

The update of operations creates the impression that Naspers’s problem of being a big fish in a small pond might get even worse. The current environment is conducive for growth in local online businesses, such as e-learning, online news and advertising offerings and e-commerce.

Expect strong growth in SA

Naspers SA CEO Phuthi Mahanyele-Dabengwa alluded to strong growth over the next five years as the digital transformation gains momentum in SA. “We still have relatively low internet penetration at only 63% and online retail penetration of only 1,4%,” he says.

He points to the growth in Naspers’s online shopping portal Takealot, saying that people are increasingly adopting online shopping in SA.

“People want lower prices and a larger choice. Once they adopt online shopping, experience the convenience and see reliable delivery, they stay,” says Mahanyele-Dabengwa.

The less than 2% usage of online shopping in SA compares to more than 20% in developed countries, indicating the potential.

Naspers’s overweight and discount problem probably won’t go away soon, unless management decides to unbundle the Prosus shares. However, this is a sensitive subject as Naspers is quite reliant on the Tencent cash flow it receives via Prosus.

The next set of results, for the 12 months to March, will show how badly the struggling print media businesses and cash-hungry local internet enterprises still need the international support.

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Phuthi Mahanyele-Dabengwa is female — she not he

AbInBev, because of how it’s listed, doesn’t form part of the top 40.

Considering that Tencent is also a holding company for the most part, maybe Naspers should list Tencent on the JSE and exclude it from the top40 index and then the true value of Naspers can be seen.

Naspers would never do that. Everything in their stable apart from Tencent is waning.

On the tortoise and hare myth.

”In real life, of course, its the hare who wind. Every time. Look around you. And in any case, it’s my contention that Aesop was writing for the tortoise market…Hares have no time to read. They are too busy winning the game”

Anita Brookner English Novelist (1928-2016)

Don’t listen to the ”naysayers” – Just buy Naspers, you can’t keep a good share down!

All the Naspers nay-saying comes from the sour grapes of people who failed to buy Naspers when it was cheap.

End of comments.

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