Is Naspers undervalued? - TechCentral

Is Naspers undervalued?

The Naspers head office in Cape Town

The Naspers head office in Cape Town

Naspers investors are breathing a sigh of relief following the release of results from Chinese subsidiary Tencent that were better than analysts had forecast.

Net income climbed by 7% to 6,88bn yuan (US$1,1bn) in the three months ended in March, the company said in a statement Wednesday.

Within three hours of the release of the results, the share had climbed by 4% to R1 847,88.

The share had fallen earlier this week following disappointing results on Monday from Chinese e-commerce firm JD.com, in which Tencent has a stake. The company, which is China’s largest online direct sales company, reported higher than expected revenue, but lower than expected earnings of a negative $0,02/ADS, rather than the breakeven that was expected, according to SeekingAlpha.com.

Investors interpreted these results as a negative indicator for Tencent, and for the state of Naspers’s entire e-commerce portfolio. By Tuesday, Naspers was trading at R1 777/share, its lowest level in a month.

Although Tencent’s latest results are for the first quarter only, they are a further indication that co-founder and CEO Pony Ma is still on his way to building a massive e-commerce ecosystem.

This system includes its mobile messaging platforms WeChat and QQ, mobile games, online shopping, online payments and travel services. The company is also in the early stages of its investment in Internet banking company WeBank. This venture has a slightly “Capitec” flavour in that it offers a low-cost model that targets the mass consumer market, which has been underserviced by China’s big state-owned banks. An array of financial service products will be rolled out in time.

So the question many investors will ask whether these results are good and whether will Naspers go back above the R2 000/share it reached in April? And if so, where to from there?

The answer lies with whether one thinks Tencent is fairly valued or not. It’s common knowledge that Naspers investors tend to discount Naspers’s many other e-commerce investments as well as its investment in MultiChoice. However, the Naspers share price is trading at a discount to its investment in Tencent, let alone its other investments.

The calculations are based as such. The Tencent market capitalisation at 1pm on Wednesday was $188,2bn. So, $188,2bn x 33,85% (Naspers stake in Tencent) = $636,9bn. $636,9 bn x 11,96 (rand/dollar exchange rate) = R761,9bn. The current market cap of Naspers is R744,9bn.

There is certainly blue-sky value in Tencent and the other e-commerce businesses, but there are risks, too, in this fast-paced consumer environment. These companies are operating at the cutting edge of the consumer environment.

  • This piece was first published on Moneyweb and is republished here with permission

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