Research archive for NPN

We promised another take on the Naspers results from last Friday. This is about the most muted price reaction that I have seen in a while to the Naspers results. First things first, Naspers trades at a significant discount to the value of the stake that they have in Tencent. I can see why in some investors minds, this is more than a little irritating. For starters, as of the close of business in Hong Kong, the price of Tencent was 284 Hong Kong Dollars a share. That puts the market capitalisation at 2.69 trillion Hong Kong Dollars. 33.85 percent of Tencent (what Naspers owns) is 910 billion Hong Kong Dollars. Which equals more or less 1.513 trillion Rand! The Naspers market capitalisation was 1.13 trillion Rand, a gap of almost 400 billion Rand. i.e. minus 400 billion Rand for all the other businesses.

On Friday we saw the release of one of the most widely held stocks here for our investors, and in fact a company that has attracted a lot of attention on both sides of the investment aisle for the better part of the last decade. Naspers. For one, a company founded in physical printing of newspapers over a century ago has managed to stay relevant with investments at the right time in the likes of satellite TV and of course the biggest home run of them all, a very early investment in Tencent. Recently there has been a more accelerated investment in internet enabled businesses and divestments of less core businesses in key geographies. Notwithstanding streaming technology taking hold, our continent is a little behind the curve, and the company managed to add nearly 600 thousand households to their satellite TV business over the last year.

Tencent reported numbers in the late morning yesterday. Tencent is difficult for most investors to understand. I don't talk for all investors, perhaps investors spend more time reading than they do partaking in role-player or single shooter games either on their PC or on their mobile phone. Plus, many investors in Naspers/Tencent do not get to experience the entire experience from the company, as it is in a different language and in many respects a closed off internet society, if that makes sense.

Another announcement that has to do with the shares that we own is that Souq finally sold to Amazon, even though the founder could have extracted more for his efforts. See the announcement on the Souq website - Joining the Amazon family. Ronaldo Mouchawar is an interesting guy, for one he is born in Aleppo, a city that has heartbreaking before and after pictures. He is tall, a former basketball player in his earlier days. He could have accepted a higher offer from another suitor, feeling however that the Amazon offer would do good by the customers.

A 13-G announcement from Tesla seemed innocuous at first glance - SCHEDULE 13G. However, if you dug a little deeper, you suddenly discovered that the investor was none other than Tencent, the Chinese business that we know very well, through our investments in Naspers. So how much is this exactly? We worked it out, they paid for the full stake (8,167,544 shares divided by 1,777,842,836 Dollars) 217.67 Dollars a share. At the closing value last evening, the stake is worth 2.266 billion Dollars. Tencent are now officially a five percent shareholder of Tesla, which is cool from our perspective down here in South Africa. Why? As a Naspers shareholder, who owns around 34 percent of Tencent, you now indirectly own a stake in Tesla.

Tencent released numbers after the Hong Kong market had closed yesterday and before the US market had opened. As such, there was only a single platform where to see the reaction, and that was here in Jozi. Naspers own a little over one-third of Tencent, in one of the best initial investments known. The results for the full year to end 31 December 2016.

Naspers delivered results on Friday afternoon. First thing to remember is that back in April the company changed their reporting currency to Dollars, for the purposes of standardising across multiple geographies. As they point out in these results, revenues derived outside of the borders of our country represent 80 percent of total revenues, so it makes sense to report in US Dollars and not Rands anymore. This is a sign of the business continuing to mature and attract more customers across the globe, as we often say, you cannot carry your hopes on only 50 odd million customers, you need to attract all of them, all across the globe! As the release points out, costs for their ecommerce business are incurred in the local currency, as such the currency movements are "diffused", whereas in the video entertainment segment (TV and streaming) you earn local currencies, your costs are in Dollars. i.e. your subscribers are buying content in local currencies, you are paying Dollars for said content.

Naspers released a trading statement on Friday afternoon. Just Thursday we had the numbers from their largest investment, Tencent, we covered those Friday - Tencent 3Q numbers - Strong top & bottom line growth. This trading statement has a few moving parts. As they often say (the Naspers board, they!), they consider "core headline earnings an appropriate indicator of the sustainable operating performance of the group, as it adjusts for non-recurring and non-operational items."

Tencent released numbers yesterday, you will recall that we teed you up with the WSJ article that included analyst expectations. It is one of my least favorite things (forecasting to the decimal point), humans however like an element of control in "all things" and tend to have all sorts of weird phobias associated with the things that we can't control. Spiders to flying, to the dark and so on, we all have different ways of avoiding or dealing with our fears. Anyhows, Naspers, at the turn of the last millennium invested in a small Chinese internet company called Tencent, the rest as they say is history. I wonder if it really was one of the best deals of all time, it may well be.

News in a couple of days ago, about Naspers, and this time on another business that the market doesn't seem to give a value to. Michael said something interesting yesterday, he said that he thought Naspers unlocking value by selling these non core assets is great for the most investors, particularly those who think the business is over valued. What he means is that many South Africans in their pension funds or in their index trackers (around 20% weighting now), own Naspers indirectly. In short, Naspers will combine their Ibibo business (Tencent also owns a stake) with another Indian travel website, MakeMyTrip. MakeMyTrip happens to be listed on the New York Stock Exchange. We will get into that in a second.

Check out the release from the horse's mouth: Naspers to sell Allegro Group to Cinven, Permira and Mid Europa. 3.253 billion Dollars is the price tag, or 46.61 billion Rand. Or at the closing price, and by extension market capitalisation on Friday, 4.59 percent. Which is not mind blowing, it is however pretty big in quantum. If that deal size (46.61 billion Rand) was a single business here, listed on the JSE, it would currently fall into 44th place, just smaller than GoldFields and PSG. And is bigger than Kumba and Sappi, by their market capitalisation. The same size as Massmart and EOH put together. Really.

Tencent are very important to Naspers. Possibly more important to the share price than all the other parts put together. The South African company owns over one-third of a percent in the Chinese "internet" company. In the last annual report that is available to investors to read, MIH, a subsidiary of Naspers, owned 3,151,201,900 shares or 33.51 percent of Tencent. Ma Huateng or Pony Ma as he is better known, owns 855,446,400 shares, or 9.1 percent of the company through an entity called Advance Data Services Limited.

It is Naspers time. It is more than a little complicated when trying to review this business, and that is why there has always been various views on why you should or shouldn't own the stock. At a face value the stock from an earnings point of view always looks overpriced. Not all valuation metrics are the same, you value the business based on the future profitability of the business. I suspect that many investors who try and value this business grapple like all of us to try and value what the likelihood of the increased investment in key areas is likely to yield. In other words, heavy investments currently in their classifieds and ecommerce businesses, mean steep losses for the time being. The longer dated investor may well think that this is very necessary for the business to jump to the next stage of investment.

Staying on the tech front, Tencent to Acquire Majority Stake in Supercell from SoftBank for U$D 8.6 billion. In total Tencent will own 84% of the company, valuing it at $10.2 billion. Pre-tax profits last year for Supercell were $960 million meaning Tencent paid a low double digit multiple for the company, time will tell if this was a good purchase. The huge risk here is that their current stable of games become old and they don't come up with new games to keep the user numbers and revenues up, currently there are over 100 million people a day who play supercell games.

The news came yesterday that Naspers had invested a 60 million Dollar stake in Udemy. Udemy describes themselves on their About Us sections as "We're the world's online learning marketplace, where 10 million+ students are taking courses in everything from programming to yoga to photography-and much, much more. Each of our 40,000+ courses is taught by an expert instructor, and every course is available on-demand, so students can learn at their own pace, on their own time, and on any device."