Forever bound to the success and trials and tribulations of Tencent, Naspers and Prosus put a damper on the JSE on Wednesday after Tencent announced disappointing results.
Naspers fell nearly 5% to close just below R1 600 per share, while Prosus lost around 3% to close at R756.
The analysts at financial news service Bloomberg noted that Tencent posted its slowest revenue gain on record following the Chinese government’s restrictions on the company launching new internet games and investigations into money transfers using its online chat application WeChat.
“Sales barely rose to 135.5 billion yuan ($20.1 billion) for the three months ended March, missing the average forecast, after online ad revenue plummeted 18%. Overall growth decelerated for a seventh straight quarter, to the slowest pace since the Shenzhen company went public in 2004,” according to Bloomberg.
While Wednesday’s fall in the prices of Naspers and Prosus translates to losses of billions of rand in terms of market capitalisation, it pales in significance to the losses the two listed entities have experienced since the Chinese government started to take a tougher stand on the operations and aspirations of big information technology companies.
Tencent has fallen by nearly 40% on the Hong Kong stock exchange over the past 12 months, from above HK$600 to just above HK$365 on Tuesday.
However, it is equally significant to note that Tencent made investors rich, gaining more than 45 000% since its listing.
The same is true for Naspers, which is currently close to 50% lower than its annual high of R3 128. It has made investors rich too since its listing in 1994 – at some R17 per share.
At the time the expanding newspaper and printing business fared well, with its first interests in the then revolutionary internet industry holding some promise. Early investors will remember M-Cell, MTN and Mweb, before the later investment in Tencent.
The restructuring of Naspers and the listing of Prosus unlocked some value for Naspers shareholders, but lately Prosus has also suffered from the turn in investor sentiment towards Tencent. Prosus is also 48% below its annual high.
Hold or buy?
Despite the volatility in the share prices of Naspers and Prosus, analysts mostly agree that both shares offer value.
Both trade at discounts of up to 50% to the value of their underlying investments, mostly Tencent. Not only do the shares offer a cheap entry into Tencent, but also easy exposure to the huge worldwide online group by buying a ‘local’ share on the JSE.
Andrew Dittberner, chief investment officer at Old Mutual Wealth Private Client Securities, said in a recent commentary that the volatility in Naspers and Prosus should be seen in the context of the severe downward trend going back to January 2021.
“Importantly, Tencent – and by association Naspers and Prosus – are not alone, as it has been a Chinese tech wide sell-off, suggesting this is not about individual company fundamentals,” according to Dittberner.
“Rather, concerns around the regulatory environment and the geopolitical risks appear to be at the forefront of investors’ minds, and how they may impact the longer-term outlook for the businesses.
“Given the extended period that this uncertainty has persisted, it is my sense that market participants are extremely jittery around any form of negative news, whether noise or signal, that is published.
“Thankfully, we have been here before,” he said at the time, adding that Tencent recovered after previous sell-offs.
Naspers and Prosus will publish their results for the financial year to end March 2022 within the next few weeks, which will give investors more insight into the rather interesting happenings in China, as well as the effect of the ongoing Russia/Ukraine war.
Listen to this MoneywebNOW podcast with Morningstar’s Sean Neethling and Simon Brown discussing what’s been behind the selloff of Naspers (or read the transcript):