Tencent 2Q numbers

Tencent released numbers yesterday, after the market closed in Hong Kong. And that was during our market. First of all, why does this matter to us? Naspers owns 33.85 percent of Tencent, it is their principal asset in size and scale, and has been for a long time their share price driver. Time to whip out the maths to see how many Rands Tencent is relative to the Naspers market capitalisation.


Tencent market cap in Hong Kong, which right now is 1.38 trillion HKD. Naspers owns 33.85 percent of TenCent, that translates to 467 billion Hong Kong Dollars. One Hong Kong Dollar at the current exchange rate is around 1.64 Rand. So, quite simply, multiply 467 billion HKD by the prevailing rate and that equals 766.49 billion Rand. Naspers had a market capitalisation of 681 billion Rand at the close last evening. Huh? That doesn't even make sense. Well, you must bear in mind that yesterdays close was awful, horrible and no good with the Naspers price sinking six and a quarter percent. Wow. The selling was aggressive yesterday.


The current gap between the value of the Tencent stake that Naspers holds and the entire market capitalisation of Naspers is minus 85 billion Rand. Or minus 6.68 billion Dollars. That is the size of a company like Discovery. Missing from the market valuation, in our infinite wisdom here in South Africa we somehow know the "real" value of Tencent, somehow our arrogance suggests that Tencent is completely overvalued. Yet, the PE unwind on Tencent is happening in front of our eyes. And the stock is up over five percent currently, which is how the market has perceived these results.


You can take a quick look at the numbers, I went through them yesterday and they all look pretty good to me: Tencent Q2 numbers. Revenues up 20 percent year on year, profits up 17 percent, Basic EPS clocked 1.528 Renminbi, that translates to 1.91 Hong Kong Dollars of basic earnings per share, that is for the first half. If you annualise that and apply a forward multiple to Tencent, you get to 36 times at the elevated shares price (up 5 percent this morning). So whilst growth of 20 percent might not be enough for locals here, the stock still trades at a premium. A growing business that attracts a higher multiple, we remain positive on Tencent and their prospects, equally we believe that Naspers has plenty more legs!