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Naspers investors want big deals, share buyback

After Tencent windfall.
Image: Shutterstock

Investors in Naspers Ltd – Africa’s biggest company – said on Thursday they want proceeds from a $14.7 billion stake sale in its Tencent Holdings investment to go towards blockbuster acquisitions or a share buyback.

Naspers’ Dutch-listed subsidiary Prosus NV sold a 2% stake in the Chinese gaming and social media giant on Thursday in the world’s largest-ever block trade, reducing its stake to 28.9%.

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Prosus’ portfolio is dominated by Tencent, which owns China’s biggest messaging app, WeChat.

Bob van Dijk, chief executive of both Naspers and Prosus, said on Thursday the stake sale created the financial flexibility to go for mergers and acquisitions, continue its on-going share buyback programme and explore other ways to create shareholder value.

A major acquisition could give one of Prosus’ other business segments – classifieds, food delivery, fintech, payments or online education – a welcome boost, analysts said.

“We might see some deal announcements again in the next six months or the rest of this year,” said Jean Pierre Verster, CEO of the South African hedge fund management firm Protea Capital Management, which holds shares in Naspers and Prosus.

Aside from acquisitions, Verster, who said Prosus had shown discipline in capital deployment after an earlier Tencent stake sale in 2018, said it could put Thursday’s windfall towards another share buyback.

“That in my mind is very efficient capital allocation and that should decrease the discount because shareholders would gain a lot of comfort that management is allocating capital efficiently,” he said.

Naspers spun off its international assets into Prosus and listed it in Amsterdam in 2019 to try to reduce a yawning discount its shares traded on the Johannesburg Stock Exchange (JSE) to the value of its stake in Tencent.

And in October, Prosus announced it planned to buy back $1.37 billion worth of Prosus shares and $3.63 billion worth of Naspers shares.

That has yet to reduce the discount.

At current share prices, Naspers is trading at a discount of 26% to the value of its roughly 73% stake in Prosus. Prosus in turn trades at a 22% discount to its stake in Tencent.

Peter Takaendesa, head of equities at Mergence Investment Managers, which also holds Naspers and Prosus shares, said he favoured another buyback over acquisitions, given that, aside from Tencent and its online classifieds, Prosus’ other businesses are loss-making.

“Some of the proceeds should go to buy back shares, which may be a better way to deploy those proceeds instead of assets that we don’t know how they’re going to play out,” he said.

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I really think that Mr Verster is one of the best asset managers in the country but in this case he is giving far too much credit to the Naspers and Prosus management teams.

Naspers is a one trick horse, the control structure belongs to the 1950s and the board is peppered with mediocrity. The market has such a huge discount over Tencent that the 5 year return in USD or ZAR of Tencent is so much more than Naspers and cannot change until Naspers lists all its rubbish separately.

Agree.
It is weird that during the “financials/earning release”, you would expect the management to provide a road map/plan for the near future and inform shareholders this is the plan and then work the plan. Yet, to throw a curveball and mentioned you plan to sell a stake today and then read in the world papers this happened…..for me, that is naughty

End of comments.

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