Research archive for NPN

The Naspers share price is doing fantastically well, trading at all time highs just short of R500. Most of this is attributable to the great performance of Tencent following very good half year results released last week. Let's take a look at these results.

Naspers, our favoured local technology stock has been fairly active of late. Because the company is so big, when it makes an acquisition below a certain size it doesn't have to report it so sometimes it seems like the company is not acquiring assets like it used to in the past. Of course this is not the case. Recently they took over 70% in the largest online retailer in Romania called eMAG. The value was not announced but the media reckon around 100 million Euro's was paid by Naspers. The retailer which was launched 11 years ago plans to expand further into Eastern Europe using the financial backing of the multinational giant.

Righto, Naspers have reported their full year numbers for the full year to end March 2012 this morning. This business is essentially four parts, first the pay TV part, which is DSTv across the continent with the larger home base here. Then there is the internet segment which is the fastest growing and most misunderstood part, which consists of stakes in TenCent, Mail.ru and various e-commerce businesses that are the biggest revenue generators (for that segment). The print media might be a smaller contributor than the two mentioned above and is essentially the old part of their business. The split inside of this segment consist of Media24, Abril (their Brazilian print media business) and MIH Print, which I suspect includes Jonathan Ball Publishers and Paarl Media.

Naspers released a trading statement yesterday, it is complicated, because there are three different measures. That is often not a good sign, but be that as it may, the company considers what they term "core headline earnings" to be the true measure. And by that measure, on a per share basis, the company expects to increase core earnings per share by between 10 to 20 percent from the last years 1612 cents. So, in the middle of that range, 1853 cents per share. So, at the current share price of 46760, the price looks completely stretched. But. But. Not so fast, the valuation is in part earnings, and in part an NAV type valuation. We have covered this before in results, check it out: Naspers valuations, that was from last year, almost a year ago, that coincided with the results there. Results are in 8 days time, that would be the true test again of what the company should actually trade at, or be worth. Because often, and I hear this, folks suggest that the Multichoice business and the just less than 35 percent stake in TenCent make up the rest of the entire market cap. So, basically, you get the rest. But that is a simple and easy way of valuing what is a complex business.

We had results that slipped through the cracks the other day but I think it's fitting to cover it today seeing that Naspers dropped 5% yesterday. I'm talking about the Tencent results which were released last week which were yet again very impressive. Analysts have constantly questioned Tencents ability to maintain their fascinating growth rate off an ever increasing base but yet again they have managed to do great things. I guess it's understandable when you have nearly 1 billion users.

And this morning we have results from Naspers, we will immediately jump into those results. These are for the first six months of their financial year. Consolidated revenues increased 17 percent to nearly 18.5 billion Rands, with "core headline earnings" clocking 3.458 billion Rands. Earnings per share for the six months came in at 921 cents, which is a modest improvement on the 860 cents reported this time last year. Someone once described this business and stock as part NAV, part earnings. Before we start on what the right price is for the business, check out the group structure:

Naspers, through Multichoice have introduced their own type of Netflix locally. It's called BoxOffice and allows you to buy movies through your decoder for R25 a pop. The movie will be available to the consumer for 48 hrs and can be watched as many times as you like. Through the lack of broadband quality they have used their infrastructure to deliver the service via satellite. Very clever. It is initially only available to DStv Premium subscribers with PVRs only. Later PCs will be able to use the service and they say it will be available to a wider range of subscribers in the near future. In the 2010 report Multichoice have 364 000 PVR subscribers. I guess they will be working on getting the technology equipped to offer the service to all their 2.85 million subscribers as soon as possible. But at this stage it would be an incentive for current clients to upgrade to the more expensive Premium PVR service.

I have seen a couple of notes on Naspers and what most folks expectations are in the coming 12 to 18 months (I know, almost anything could happen), but the ones that I have seen so far are fairly bullish. The main theme is that the valuation afforded to it by the market is wrong, and in due course the market should rerate the stock. Now remember last week when I was disgusted with Remgro for telling me where and what the value is. Here it is not the company telling us (in fact Koos Bekker suggested that he was happy with the valuation of TenCent and Mail.ru in a wireless interview) but rather the analyst community. That, I think is the subtle difference.

One that we will not be giving a wide berth and that we have been buying recently is Naspers. Results out this morning. Here goes, a Jackie Selebi (copy paste job) from the first few lines:

A pretty badly taken trading update from Naspers yesterday, Byron said this morning, well, what did they want, thirty percent? Let us regurgitate the official release: "We expect core headline earnings per share to be between 10% and 20% higher than the comparable period's 1 426 cents. Shareholders are reminded that the board considers core headline earnings an appropriate indicator of the sustainable operating performance of the group, as it adjusts for non-recurring and non-operational items"

It's tough out there for these technology stocks that have done so well in the last few years. It seems that reporting results that are in line with consensus is not actually in line with consensus as consensus is actually an expectation to beat consensus. Get it? Sounds unfair not so? Tencent reported fourth quarter results for 2010 which were in line with consensus and the stock has dropped around 10% in Hong Kong today.

Naspers results this morning, for the first half. Before we jump into these numbers, remember through their stake in DST global that they have small indirect investments in Facebook and also in a business called Groupon. Last night Twitter was abuzz (well, the nerds I follow anyhow, it hardly is going to be a trending topic) with news that Google were looking to acquire Groupon. The Business Insider suggested that this was not going to be the case: No, Google Has Not Bought Groupon Yet. And then, DST was about to make a 100 million Dollar investment in Twitter and value the entity at 4 billion Dollars. That has traditionally been DST Global CEO's Yuri Milner's style. And Naspers style is let these alpha males run the businesses.

Naspers released a trading update yesterday and it was well received. Check this out: "We expect core headline earnings per share to be between 25% and 35% higher than

I promised you some different insight into Naspers on Friday. I tell you, it is not easy. First things first, the cash cow, the DSTV business makes over 5 billion ZAR in profits off less than 17 billion ZAR worth of turnover, in a year. And the business has been growing steadily at around 15 percent per annum. What would you pay for such a business? 12 times earnings? 10 times? OK, let us say 11 times earnings to be fair, so we have the first part of our back of the matchbox valuation model working here:

Who, when, why, what? Session end the all share closed near the top end of the day, 29779 points, 32 points better on the day. The media index surged as Naspers rocketed. More on that in just a touch. Platinum stocks were a percent and a half lower.