Naspers: Should You Get In Or Out?

Many analysts believe the media and e-commerce giant Naspers still has tremendous growth potential. But critics point to numerous concerns – including that it is trading at a discount, that it has a controversial control structure and that its non-Tencent assets are flagging – which they say make investment in the stock a risky proposition.

- Marcia Klein

A negative research report is enough to send fear rippling through companies these days. Following the Steinhoff disaster in December, which coincided with a scathing report by Viceroy Research, Capitec and Resilient have felt similar tremors – and seen their share prices drop – following reports by Viceroy and 36ONE respectively.

A mere rumour of a report in the making is enough to send a share price plunging – just ask Aspen. So in January, when Investec issued a report saying Naspers* “deserves a 30% discount on all of its assets”, the largest South African company and most expensive and most successful share on the JSE fell 16%.

Interestingly, Investec issued another report just a few weeks later, changing its position from hold to buy. (Investec would not release the initial report to finweek, and declined to comment on it.)

Although the share price may be under pressure, investors are not rushing to dump Naspers. This is because, at R3 290 a share and accounting for 19% of the FTSE/JSE All Share Index (Alsi), Naspers reigns supreme on the exchange. Over the past five years, the Naspers share price grew over 440%. Even in the last year, when the Alsi grew 14%, Naspers recorded a 54% increase. It trades at a massive price-to earnings ratio (P/E) of 95.

Its heady price makes it an investment proposition only for the well-heeled, but you can be sure it features strongly in the bulk of pension and retirement fund portfolios, unit trusts and exchange-traded funds (ETFs).

There is good reason for this. Naspers is the only vehicle to get exposure, at a discount, to a fast-growing global internet giant, the China-based Tencent, through its 34% stake in the Hong Konglisted Tencent Holdings.

Discount

With Tencent representing 150% of the value of Naspers, you get Tencent at a discount and the group’s other substantial assets are thrown in for nothing.