Naspers’s pay-TV business MultiChoice will start trading on the JSE on 4 March. Speculation on MultiChoice’s business model, cash generation and prospects is rife. So, is it a buy?
At the end of this month the MultiChoice Group (MCG) will be unbundled from the Naspers* stable and Naspers shareholders will receive one MultiChoice share for every Naspers N share held. On Monday 4 March, MultiChoice will begin operating as a standalone entity, with its own share price to be determined by shareholder opinions of its prospects across Africa.
In the build-up to the unbundling, speculation on MCG’s business model, cash generation and prospects have led to wildly divergent takes on target prices for buying into, or selling, the share once it begins trading.
Naspers’s rationale for letting MCG go is sound. The broader group has become focused on internet retail and no longer fits with the strategic focus of MCG. The move also provides an opportunity to unlock some value for Naspers shareholders who continue to balk at a share price that reflects the value of the group’s holding of Chinese internet company Tencent, while entirely discounting other entities within Naspers.
But for many investors it is hard to shake the feeling that in the internet age, Naspers is getting shod of a pay-TV company that faces an uphill struggle to grow. With Netflix, Amazon Prime and other internet streaming companies offering so-called over-the-top (OTT) content, MultiChoice has its work cut out to protect its current subscriber base, not to mention attempting to provide capital growth to shareholders.
For this reason, most analysts believe valuations will be based on the assumption that MultiChoice is ex-growth and will be a pure dividend play.
Nick Crail, senior fund manager at Ashburton Investments, believes fair value for the unbundled entity would be around R40bn to R60bn, and should trade in the R90 to R135 per share band.
The costs of procuring and distributing content are key, with most global content priced in dollars.
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