While the interim results from Naspers and Prosus have to be considered as a combined entity in many aspects – with the companies publishing separate, nearly identical press releases as far as operations are concerned – it is a tale of two cities. Actually three, because we must remember the capital city Tencent.
Bob van Dijk, CEO of Prosus and Naspers, says about both entities: “In the first half of the year, our internet businesses delivered solid growth compounding a strong performance for the same period last year. Our progress is reflected in the increasing value attributed to our ecommerce portfolio and, to capture the significant opportunity ahead, we stepped up investment in our core segments of food delivery, edtech, payments and fintech and classifieds. Prosus (alternatively Naspers) companies now serve more than two billion customers and we continue to build innovative products that make a difference in people’s lives.”
CFO Basil Sgourdos says in his overview of the two companies’ results for the six months to September 2021 that they have made good progress on several fronts.
“The ecommerce portfolio continues to grow at pace and we are focused on investing behind that growth to build momentum and capture the significant opportunity we see ahead. To this effect, and as an indication of how we are scaling our businesses, we delivered 44% growth in our established and consolidated profitable businesses, resulting in increased cash generation to the centre.
“At the same time as investing for growth, we continued to crystallise returns for shareholders during the period through a $5 billion share-repurchase programme,” says Sgourdos.
Prosus announced that revenue increased 29% to $16.6 billion and core headline earnings by 2% to $2.3 billion.
The Naspers results show the same rate of growth in revenue, but reported that core headline earnings decreased by 4% compared with the first six months of 2020.
Both Naspers and Prosus reported a strong increase in revenue from all the underlying divisions, with growing losses in the ecommerce and food delivery businesses, as well as in the newer educational ventures. The payments and fintech segment held its own, while classified reported an increase of more than 130% in trading profit.
The two big divisions, food delivery and online classified advertising, continued to grow business volumes and revenues, if not profit.
Management reported that the performance in the global food business remained strong. iFood, Swiggy and Delivery Hero are operating at significant scale and innovating beyond their core food delivery businesses into complementary adjacencies such as convenience and grocery delivery, according to management.
The food delivery businesses are operating in more than 60 countries worldwide.
Prosus figures show that gross merchandise value for the food delivery division increased 73% from a year ago and the number of food orders grew by 70%. This pushed revenue up by 86% to $1.3 billion.
Within the classifieds division, OLX delivered strong growth. Management noted that it accelerated new developments in its more established markets (Russia, Poland and Brazil), such as pay-and-ship services, increasing trust and safety across its platforms and scaling its vehicle sales transactions businesses.
Revenues more than doubled to $1.3 billion in Prosus’s books and trading profit increased significantly, growing 139% to $108 million.
However, the detailed financial statements of both Naspers and Prosus show that Tencent is still the goose that brings home the bacon.
The income statement shows that revenue increased 43% to nearly $3.58 billion, but investments to expand ecommerce units resulted in the operating loss increasing from US$274m to US$315m.
The net interest charge increased dramatically from $41 million in the first six months of the previous financial year to $150 million, while other finance costs increased to $175 million (a positive $2 million in 2020).
Adding it all up gets us to a loss of $640 million, compared with a loss of $313 million a year ago.
It was the huge increase in equity-accounted profit – increasing from $2.88 billion to just below $4.1 billion – that made the difference.
While this figure includes interest other than Tencent, the massive Chinese internet group makes up the bulk. The income statement also shows income of $12.4 billion as income from the sale of Tencent shares.
The effect of the share sales was stripped out in calculating headline earnings per share. Headline eps declined from $4.04 to $3.68.
Prosus’s formal income statement shows revenue improving from $2.17 billion to nearly $3.07 billion and operating losses increasing from $207 million to $304 million. It also reflects a big increase in interest paid and other finance costs, as well as the income from associates and the income from the sale of Tencent shares.
Profit for the six months to September is given as $15.89 billion compared with $3 billion a year ago.
Headline earning for the new N shares are given as $1.44 per share compared with $1.47 per share for the first half of the previous financial year.
Management notes in its commentary to the results that Tencent delivered strong results and remains positioned for continued growth.
“In April 2021, to improve our financial flexibility and reinforce our balance sheet, we sold 2% of its issued share capital, generating proceeds of $14.6 billion and reducing our holding to 28.9%. We have been investors in Tencent for over 20 years, with the only prior disposal being 2% in 2018,” it says, arguing that in both cases the proceeds were used to fund strategic ambitions which resulted in a meaningful increase of net asset value.
Discount to NAV
Unfortunately, both Naspers and Prosus are still trading at big discounts to their underlying NAV.
Management is not shy to distribute these figures, using the valuations of analysis at different stockbrokers and asset managers to get a handle on the value of the unlisted interests.
Prosus calculated its NAV at $218.7 billion at the end of September 2021, of which Tencent was $164 billion.
The total NAV was equal to R3 301 billion (yes, R3.3 trillion) at the exchange rate at the time.
Tencent accounted for $164 billion of this then. The NAV per share of R2 290 compared with the share price of just above R1 200 at the end of September.
The same is true for Naspers. The company calculated its NAV as $91.2 billion (R1 377 billion). The share traded at around R2 490 then, compared with its NAV of R6 326 per share.