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Dollars and Tencents

30 October 2020 By Peter Thal Larsen

Naspers has found a reasonably priced internet investment: its own stock. The $84 billion South African technology investor and its Amsterdam-listed offshoot, Prosus, have lagged behind big tech companies in this year’s pandemic-induced surge. A $5 billion share buyback highlights the valuation disconnect and carries a message to other money managers.

Naspers owes much of its current heft to a prescient early investment in Tencent. However, shareholders have long been reluctant to recognise the full value of its 31% stake in the Chinese web giant. In an attempt to close the gap, Chief Executive Bob van Dijk last year created Prosus to house the Tencent shares and other internet investments, including listed stakes in Germany’s Delivery Hero, Russia’s Mail.ru and a portfolio of private holdings. The idea was that international investors would be more willing to buy shares in the European company than its Johannesburg-listed parent.

Though the plan initially worked, the gap has opened up again. Tencent shares have surged 57% this year, while Naspers and Prosus are up 38% and 31%, respectively.

As of Friday morning, Prosus’ shareholdings in Tencent, Delivery Hero and Mail.ru had a combined market value of around $232 billion, according to Breakingviews calculations. Yet the Dutch company’s equity is worth just $165 billion. Meanwhile Naspers’ market value was a hefty 30% less than the implied value of its 73% stake in Prosus.

The enduring discount is partly due to Naspers’ dominance of South Africa’s exchange. It’s such a large component of the benchmark index that local institutions bump into their limits on single-stock exposures. The share buyback announced on Friday morning should ease some of that pressure. Prosus will spend up to $3.63 billion on its parent’s shares, and the rest on its own.

The move also signals a broader wariness about tech valuations. In the past year, Prosus has lost out to more aggressive rivals when bidding for UK food delivery group Just Eat and eBay’s $9 billion classified advertising unit. It continues to make smaller venture capital investments in online startups specialising in areas such as payments and education. But the buyback suggests van Dijk doesn’t see much value in listed stocks, other than his own.


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