Naspers full year numbers

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:

"The group achieved a solid performance over the past year. Consolidated revenues grew by 18% and core headline earnings were up 13%. These results were underpinned by a diversified portfolio and a strong balance sheet. Major areas of growth were the internet and pay-television businesses.

Worldwide the internet industry continued its expansion from which most of our internet businesses benefited. The resilience of our pay-television operations in an increasingly competitive environment underscores the benefit of quality content, although rising costs place margins under pressure. Our print media business experienced a limited recovery in advertising revenues, whilst the technology business was able to improve margins."

Excellent. They state the obvious in the commentary: "Recent experience is that internet valuations, in our opinion, have become inflated and good value is difficult to find these days." Quite, LinkedIn and the valuation been thrown around for Facebook and Twitter and other internet businesses. But they go on to say: "As a consequence, we are focusing somewhat more on growing our businesses organically and on developing new technologies. This may dampen earnings in the year ahead as the cost of developing these businesses are expensed through the income statement. However, we believe this strategy is sound and will stimulate long-term growth prospects." Could you say that they got in early on some of these businesses? The Naspers magic. Yes, you could say that.

First, the pay TV business. Which added 977 thousand folks to better TV viewing, (thanking the FIFA 2010 event along the way), which saw the segment grow revenue by 19 percent to 21 billion ZAR. Margins lower, because of "cost pressures from growing the subscriber base, higher sport content costs and competition." Hmmm, those darned football players get paid so much. Torres one and only Chelsea goal so far has cost the club 50 Million pounds. And how much a week?


The official line from a SENS release a few weeks back on the Village acquisition of Simmers is in my mind, misleading: "The acquisition of the majority of the Simmer's assets by Village will represent our third successful transaction in under two years. This will herald an exciting dawn for Village as the company transforms into a mid-tier precious metals player. Now that the acquisition is unconditional we can focus on our strategy of integrating these assets to create cash generative and growth-focused, socially responsible mining entities".

Operationally Simmers has made a loss for the last eight years, all the way back to 2003. The number of Simmers shares in issue went from 215 million in 2003 to 1.231 billion. Nearly one billion shares issued in 8 years completely blowing you away. All I am saying is what will change. Same (not good) assets, same (rising) cost issues. That I guess is my point, be careful of "new things" which are just old things. Perhaps the Bernard Swanepoel magic will work. Or does he have any magic? Again, I don't know the answer, but as usual, we will give this a wide berth.

I read somewhere that Chelsea's wage bill last year was 172.5 million Pounds. WOW!! Roughly 275 million Dollars. Manchester City had a 133.3 million Pound (around 215 million USD) wage bill whilst third place (and champions) Manchester United are close to their town rivals at 131.7 million Pounds or 210 million Dollars. I counted 34 players in the Chelsea squad, an average of 5 million quid a year for doing what you like. And that my friends is why we have to pay more for satellite TV. But of course bankers and other professionals are overpaid. And when last did you see Lloyd Blankfein in a jockey advert, or as the poster boy for Adidas. Never, but he (Blankfein) is the best at what he does, even if people do not want to pack a stadium to hear him speak.

That pay TV business makes a trading profit of 5.727 billion ZAR. My next question is, what would you pay for a business like that? You don't pay (i.e. you cannot service your debit order) you get cut off. Pay and watch, awesome. My experience is that the importance on this is (sadly) placed on a higher rating on a monthly basis than any savings. So a growing business in South Africa and on the continent who are unlikely to cancel their subscriptions any time soon, would you say pay 12 times earnings for that? Perhaps? OK, so perhaps a maximum of 70 billion ZAR. A conservative rating, I think, for 4.9 million subscribers across South Africa and sub Saharan Africa. Per customer? 14,286 ZAR a subscriber valuation? 1190 ZAR a month.

Next, what would you pay for the print business? Really, what would you pay for a business that made three percent less than last year, 872 million ZAR. The Daily Sun through to Drum magazine. Would you pay, say, ten times earnings? Call it 9 billion ZAR maximum.

And then there is the most exciting part of their business, mostly TenCent and Mail.ru really, which grew to 3.6 billion ZAR. That grew by nearly 50 percent. What would you pay for that? 15 times earnings? 20 times earnings for a business growing at that click? Let us say 15 times, I get to 54 billion ZAR. In truth the Hong Kong valuation for TenCent is 35 times earnings. The market and the participants give TenCent a market cap of 380 billion Honk Kong Dollars. One Hong Kong Dollar = 0.8866 ZAR. Naspers' 35 percent stake in TenCent is valued then at 118 billion ZAR. Of course if they had to sell it at the ruling price. A stake that size might attract a bit of a discount, I am thinking.

Mail.ru, relatively small now, Naspers have a direct 29.1 percent stake and believe it or not TenCent owns 7.8 percent. Mail.ru "trades" at 31.32 US Dollars per share. There are roughly 208.5 million GDR's (Global depositary receipts) in issue, Naspers then should own around 60.67 million shares would roughly be worth 1.9 billion US Dollars. At current exchange rates, that is roughly 13.1 billion ZAR. Again, to get such a big stake away, I presume that with a lack of liquidity there would be a discount. Add only these two internet businesses together and you get over 130 billion ZAR. That is the valuation that the market affords to TenCent and Mail.ru, not me.

So what does the market then afford to the Naspers business overall, here in South Africa? Well, 150 billion ZAR. Again, there are deep discounts applied to these businesses locally. We again apply our minds to this and no doubt you will see more in the coming days, I can feel a whiteboard drawing coming up again. Or, an iPad drawing, yes, that would be a whole lot more reasonable, a series of scriblings on an iPad!! For the record at midday here in Jozi the Naspers share price is marginally higher, just a fraction really, in line with the rest of the market.