More Than Just A One-Trick Pony?

In the wake of the release of Naspers’s annual results, Brendan Peacock analyses the performance and outlook for the JSE giant and the verticals it is invested in. Among others, a consolidation in the global food-delivery space may be a sweet spot for Naspers, but investors should also keep tabs on the risks to its largest investment, Tencent.

- Brendan Peacock

For more than a decade, Naspers* has formed the bedrock of the retirement funds of most South Africans. Through sovereign rating downgrades, currency weakness and corporate scandals that have decimated the domestic economy and destroyed wealth, Naspers has dragged the JSE away from disastrous territory by sheer dint of its enormity in the FTSE/JSE Top 40 Index and Tencent’s ongoing growth.

As investors digest the latest set of annual results from Naspers, it is worth taking stock of how the company is positioned as the world continues to grapple with the economic fallout of an unexpected and unprecedented health pandemic.

In February of 2019, Naspers listed its satellite entertainment division, MultiChoice, and in September spun off a new entity called Prosus onto the Amsterdam Stock Exchange, designed to house all the company’s internet-based businesses, of which the largest and most notable is its 31% stake in Chinese internet powerhouse Tencent. Chief among the aims of the spinoffs was management’s desire to accede to shareholder demands for value to be unlocked by reducing Naspers’s discount to net asset value (NAV).

The discount

Since then-CEO Koos Bekker’s prescient and highly successful speculative investment into Tencent two decades ago, the Chinese company’s rapid growth soon dwarfed the value of the ‘rump’ of Naspers, which was effectively valued at less than nothing by the market. Shareholders clamoured for management to dismantle the rump to deal with the discount. Prosus was a substantial step in that direction, but the Naspers discount remained – and Prosus had developed its own discount to NAV. Currently, Naspers’s discount sits around 40% and that of Prosus is approaching 30%.