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Naspers looking at easing dominance on JSE

An issue that is hampering efforts to narrow a valuation gap between the group and its stake in Chinese internet giant Tencent.
Image: Dwayne Senior/Bloomberg

Naspers is looking at ways to reduce its dominance of Johannesburg’s stock exchange, an issue that is hampering efforts to narrow a valuation gap between the group and its stake in Chinese internet giant Tencent.

The global e-commerce holding company makes up almost a fifth of the bourse, even after spinning off most of its assets into Amsterdam-listed Prosus NV in 2019. Naspers stock has had a blistering start to the year, gaining almost 18%, the best performer on the FTSE/JSE Africa Top 40 Index.

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“That leads to trading dynamics that don’t help the discount, and in time we are going to see if we can mitigate some of that,” Naspers Chief Executive Officer Bob van Dijk said in an interview with Bloomberg TV on Wednesday.

Naspers has long struggled to close the valuation gap between the South African company and its Chinese star asset, most notably through the creation of Prosus, which holds almost all its internet businesses including the Tencent stake. Yet Naspers’ valuation of R1.55 trillion ($102 billion) remains stubbornly short of its 31% share of the WeChat-creator, which is worth about $269 billion.

Growth Potential

By taking up about 20% of the JSE’s main index, many tracker funds are forced to cap the amount of Naspers stock in their portfolio — limiting the share’s growth potential compared with that of Tencent. One obvious way to counter that would be for Naspers to break up into separate parts, according to Nick van Rensburg, CEO of Johannesburg-based Phakamani Impact Capital.

“Essentially Naspers needs to be smaller,” he said by phone. “I would probably split up the other businesses when they are bulky enough — you want them to be big enough to get into an index because then you have investor demand.”

Naspers could also buy back more shares, he said, after Prosus started a $5 billion repurchase of its own stock and that of its South African parent last year.

Prosus, in which Naspers retains a 72.5% stake, controls various firms specialising in the likes of online-food delivery, payments and education businesses around the world. They are becoming “more profitable and visible to investors,” Van Dijk said — especially as the Covid-19 pandemic keeps people at home and managing their affairs online.

“That is what I spend most of my time on,” the CEO said. “When you look at the financial performance of our other businesses, they are growing faster than Tencent.”

Naspers shares traded 1.2% lower as of 3:31 p.m. in Johannesburg. Prosus fell 2.8% in the Netherlands, paring its gain since formation to 31%.

“Prosus in Europe is quite a small percentage of the index, which means it’s quite an attractive asset,” Van Rensburg said. “It’s easy for people to be overweight or underweight.”

© 2021 Bloomberg

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Bet they will disinvest the Tencent stake from SA before end of 2021.

more than 100% of the valuation of the valuation is liquid listed shares in an illiquid underlying asset that generates no meaningful cashflow. There is the problem.

Other problem is if they could (they can’t) unbundle TenCent to holders and those holders could trade TenCent, then they expose that the remaining assets are underperforming and shall we call it optimistically valued in Excel.

Very much so. I assume by “easing dominance” they mean transferring business offshore thus reducing the local share price. Prosus looking up?

The Naspers businesses in SA are almost all either loss-making or in their waning phase. Satellite TV (waning), Print Media (waning), Emedia (loss-making), Takealot (marginal), Mweb (for sale), Distribution (loss-making), etc. etc.

The businesses that previously generated big inflows were done so off regulated monopolies backed by the previous regime. e.g. print media (newspapers and magazines), MNet/DStv, book printing

Their time is up. Naspers in SA is essentially Tencent Africa. Little more.

End of comments.

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