Forums General Discussion Trying to understand Naspers

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  • Arjan MArjan M Newbie
    Post count: 5

    Hi everyone,

    So I learned about the company Naspers from Adrian Saville on Tobias Carlisle’s podcast. The company is listed in Johannesburg where it represents around 1/4th of the total market by market cap at around 108B USD. Naspers is an international multi-media business operating from South Africa with holdings in prominent international businesses. Probably the most striking holding is a 30% stake in Tencent. Interestingly, on an enterprise value basis Naspers trades at a discount to its Tencent holding alone – a 30% stake in Tencent’s EV would imply an EV for Naspers of 135B USD, but Naspers actual EV is only 102B USD. Naspers owns stakes in various other internet businesses, most of which have a distinct focus on developing economies.

    I’m very much in the early stages of analyzing this business, but the ability to buy Tencent at a discount alone is quite intriguing from the get go. Tencent represents 76% of Naspers’ total revenue in FY2019. On basis of EBITDA the stake in Tencent brings in 4.3B USD on a total EBITDA of 3.8B USD. On first view Naspers appears in large part a discounted way to buy into Tencent, but I have not gone through the reports so I cannot speak yet to the value of the other equity that Naspers holds. On a PE basis the company today trades at 18.7 and a PB of 3.8.

    Interestingly, there’s a very relevant upcoming development for Naspers. Being listed in Johanneburg the institutional investors in SA are apparently limited to holding no more than 10% of an individual stock in their portfolio. This fact is cited regularly as a justification for why the stock may be significantly underpriced to its underlying assets. Naspers announced to spin off part of its business into a primary listing on the Amsterdam Exchange under the name “Prosus” (previously the listing was going to be named “NewCo”). This new listing not only makes this the stock far more attractive to buy for me as a European (SA market is still quite difficult to access), it also lifts technical constraints that many claim are keeping the stock at a sedated price.

    So I’m curious if anybody has Naspers on their watchlist and have gotten further into valuating this interesting company – especially now that it is more accessible to retail investors outside of SA.

    Thanks!

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    Sergio FelerSergio Feler Senior Member
    Post count: 28

    Hey Arjan,

    I just took a look at Napsters in Morningstar, because is the type of companies I’m focusing on.
    According to them, Napster is fairly valued and is trading at the intrinsic business value. Tencent, which is a company I’m following and I’m a shareholder, is trading at a 30% discount. So I’m interest to know why you decided to not proceed with Tencent directly?

    Regards,
    Sergio

    massive4000massive4000 Aspiring VIP Member
    Post count: 59

    Hi Arjan,

    I’m a shareholder in Tencent.

    I had a similar situation in a company called Altaba (AABA). Altaba had a pretty large stake in China’s ecommerce giant Alibaba and always traded at a discount to it’s net asset value due to the tax implications of offloading their position; the hope was they would find a tax efficient way of offloading their stake or distribute Alibaba shares. I eventually sold as it didn’t look like either was going to happen.

    I think if you want to buy Nasper for Nasper then yes they look pretty cheap, however if you’re buying it for a discounted stake in Tencent, I wouldn’t recommend it. You’re leaving them with the choice to do what they want in Tencent, and from what I read recently, they want to reduce their position in Tencent.

    it takes time to make money, give yourself "time"

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    Arjan MArjan M Newbie
    Post count: 5

    Thanks for your comments. 🙂

    {I just took a look at Napsters in Morningstar, because is the type of companies I’m focusing on.
    According to them, Napster is fairly valued and is trading at the intrinsic business value. Tencent, which is a company I’m following and I’m a shareholder, is trading at a 30% discount. So I’m interest to know why you decided to not proceed with Tencent directly?}

    I’m not familiar with how Morningstar comes up with its fair value so I’m not sure how to address this question. Presumably the tool ranks companies mostly on things like projected earnings, whereas the case for Naspers is more about the value of the assets. By my valuation there’s no obvious value to be had in Tencent at its price – it’s clearly a great growth story but that’s very public knowledge already and it sells at a very generous PE and even PEG.

    {I think if you want to buy Nasper for Nasper then yes they look pretty cheap, however if you’re buying it for a discounted stake in Tencent, I wouldn’t recommend it. You’re leaving them with the choice to do what they want in Tencent, and from what I read recently, they want to reduce their position in Tencent.}

    I’m interested in the company as a whole, the purpose of buying Nasper would not just be an arbitrage move to buy Tencent. I like the concept of an investor in multi-media services in developing economies but I didn’t have so much to write about that facet yet because I have only just started with my research into these companies.

    Having said that, you raise an excellent point that the asset value in Tencent may not be realized in full. For now Naspers derives excellent revenue through Tencent that leads to a quite attractive earnings yield, but that also means that if Naspers decides to sell of some of its stake in Tencent to make new investments there is not telling they will be just as successful. As I mentioned above Naspers would at current not be profitable on an EBITDA basis if not for its Tencent holding as per its most recent report, but that in itself is not necessarily a bad thing since there is a lot of profitability left to unlock in Naspers’ other holdings.

    In any case, selling part of Tencent should free up tremendous amounts of cash that could either be distributed to shareholders very tax efficiently (possibly even untaxed) under Dutch fiscal law, or they may chose to make new investments that may be beautiful nuggets too. I don’t understand the company well enough to pass judgement for myself on that last part yet.

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