Naspers FY Numbers - deeper look

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.

How is that possible? Is it that Tencent holders are valuing the company at too high a multiple and are the local investors being more "realistic"? Even if Naspers were ONLY holding Tencent, applying such a deep discount on a fast growing asset would seem a little bizarre. The fact of the matter is that there are businesses deep in Naspers, not all of which are profitable and some are also legacy businesses. I suspect that a lot of it has to do with the very heavy weighting in the South African index, where foreigners have been net sellers of the stock. Added to that, the local investment community has always thought that the stock is overvalued, so you are stuck with the company trading at this big discount.

Plus of course, there is internal debt that belongs to Naspers itself, not Tencent. As an investment holding company, it is not uncommon to discount share price relative to the NAV. It happens often. Tencent is not cheap, it trades on a historical multiple of 50 odd times, growing earnings in the mid twenties (percentage wise). As such the PEG ratio is still pretty high, the market is expecting BIG things from Tencent and thus far it has delivered.

This is an incredible article from Bloomberg about how they ended up here, and profiles Martin Lau, the Tencent president -> Tencent Dominates in China. Next Challenge Is Rest of the World. Read it, from beginning to end. You will learn many things about the corporate culture at Tencent and how they are far from done, only starting out. Again, it is an entertainment business, widely misunderstood by the investment community. Let us face it, many investment analysts are unlikely to engage in the new game releases on their handsets. The president of Tencent (as per the article) did some deep research into the business they were buying, becoming so good at the game (that they were buying), he clocked a top 100 all time score.

Naspers holds a whole bunch of investments, other than Tencent. Delivery Hero lists today (Delivery Hero Prices $1.1 Billion IPO at Top End of Range) and Naspers owns around ten percent (less post the dilution of the share issuance). It is another reminder of their global investment reach and aggressive nature to stay current.

Unlike the noise making fellows who are looking for quick returns, we remain very patient on the prospects of the company having multiple businesses inside of their stable. Tencent itself continues to evolve, with multiple business avenues. And if you can continue to accumulate the stock at a discount. It is a great opportunity, we continue to recommend this company as a buy.