Hold Through The Pain

If you own Naspers/Prosus (I will call it just Prosus going forward), you would have certainly noticed the recent beating it has taken. Both stocks are down over 30% this year. As with most market movements, the reasons for the fall are complex.

Firstly, they have exposure to Russia. Prosus owns 27% of VK (previously known as Mail.ru), the Facebook and Gmail of Russia. That share is down 95% in 3 months, but that is only 0.5% of Prosus' NAV and probably should be written down to zero. They also have an OLX (online classifieds) division in Eastern Europe which has done pretty well in the past. Again though, not big enough to really move the needle.

The second factor is China and Tencent. Tencent is down 11% so far this year, but clearly, Prosus is down a lot more. It explains some of the drop but not all of it. There is also some concern that the Chinese government will declare the external holding structures of Chinese companies like these illegal.

I would say the largest contributor to the drop in share price is the general tech sell-off we have seen. This relates to the rest of Prosus' businesses, excluding Tencent. Globally, we have seen a downward re-rating of tech company valuations, particularly those with high growth potential and low current profits. These types of companies are the core holdings in the Prosus portfolio.

The frustrating thing about Prosus is that it did not benefit from any upside from the investments outside of Tencent, but it is certainly participating in the downside. The discount to NAV is at an all-time high (nearly 60% for Naspers). The holding structure is clearly a problem and management need to take note. The pressure to do a full unbundling is really rising.

Our advice here is to hold through the pain, eventually this value will be unlocked and you will reap the rewards. We also endorse the underlying businesses that they own which makes it easier to close your eyes and hold on for dear life.