Whenever Naspers and Prosus management address any of their stakeholders – this time a quick update on the group’s operations – somebody will quickly pose the question of what management is doing to address the discount of the Naspers share price to its underlying net asset value (NAV).

It’s a question that Prosus and Naspers CEO Bob van Dijk is probably tired of hearing, and one that he has no answer to.

The separate listing of Prosus on the Amsterdam stock exchange in September 2019 to house Naspers’s valuable Tencent interest and its other international internet businesses, such as the big and fast-growing food delivery operations, did little to unlock the not-so-hidden value.

If anything, it had the opposite effect. Investors piled into the new share and awarded Prosus a sterling rating, resulting in market capitalisation which attracted the attention of the world’s largest fund managers. The listing of Prosus actually put a firm value on the international assets and highlighted the Naspers discount to its NAV.

A brief look at the figures explains local shareholders’ dilemma. Current share prices value Naspers at R1.65-trillion and Prosus at nearly R3.14-trillion. The 76% that Naspers owns in Prosus alone is worth R2.38-trillion – way more than Naspers’s market capitalisation.

The rest of the South African assets, including Media24 and Takealot.com are also not worthless.

Just too big

Nobody can blame Van Dijk for not having a convincing answer to the often-repeated difficult question. The truth is that Naspers is still too big for the JSE. The NAV problem is getting worse as Prosus grows.

“The discount to NAV is one of the key priorities for management and the board,” said Van Dijk. “The listing of Prosus narrowed the discount, but since then it has widened again.”

He alluded to the real problem, saying that Prosus attracted global investors after its listing in the Netherlands. Prosus is one of the largest consumer Internet companies in the world with its operations reaching 1.5 billion people, and growing.

The Covid-19 pandemic has accelerated the trend towards remote working and online shopping, entertainment and education, said Van Dijk. “Meanwhile, Tencent is delivering great numbers. China is the world’s biggest Internet market.”

On the JSE, Naspers just can’t keep up with the increase in the Prosus share price as local shareholders cannot keep up with the international investment community. Tracking the Top40 would make most portfolios uncomfortably overweight in only two shares – Naspers and Prosus.

Even the world’s largest beer brewer, Anheuser-Busch InBev, comes third in terms of market cap on the JSE. Not only is Naspers huge, it’s also growing. Thanks to Prosus and Tencent, the share price keeps on increasing.

Naspers ran from below R400 per share in 2011 to a high of R3 600 at the time of the listing of Prosus in 2019 when it fell back to just above R2 000 due to the Prosus unbundling. Since then, Naspers has increased again to wipe out this “loss”. Yesterday, it was sitting at around R3 800 while management was giving its update.

Prosus increased steadily since its listing in September 2019, rising by more than 60% from its listing price of R1 200 to the current R1 930. The other big players on the JSE did not do so well. The steady and steep rise in Naspers shares has seen it pulling ahead of the rest of the pack, despite the growing increase in the discount to its NAV.

Sensitive subject

The update of operations creates the impression that Naspers’s problem of being a big fish in a small pond might get even worse.

Naspers’s overweight and discount problem probably won’t go away soon, unless management decides to unbundle the Prosus shares. However, this is a sensitive subject as Naspers is quite reliant on the Tencent cash flow it receives via Prosus.

The next set of results, for the 12 months to March, will show how badly the struggling print media businesses and cash-hungry local Internet enterprises still need the international support.