Close Menu
TechCentralTechCentral

    Subscribe to the newsletter

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    Facebook X (Twitter) YouTube LinkedIn
    WhatsApp Facebook X (Twitter) LinkedIn YouTube
    TechCentralTechCentral
    • News

      Beijing’s chip champions blacklisted by Taiwan

      16 June 2025

      The little-known company disrupting Eskom’s monopoly

      16 June 2025

      Chief sub-editor wanted – help shape South African tech media

      16 June 2025

      Public money, private plans: MPs demand Post Office transparency

      13 June 2025

      Coal to cash: South Africa gets major boost for energy shift

      13 June 2025
    • World

      Yahoo tries to make its mail service relevant again

      13 June 2025

      Qualcomm shows off new chip for AI smart glasses

      11 June 2025

      Trump tariffs to dim 2025 smartphone shipments

      4 June 2025

      Shrimp Jesus and the AI ad invasion

      4 June 2025

      Apple slams EU rules as ‘flawed and costly’ in major legal pushback

      2 June 2025
    • In-depth

      Grok promised bias-free chat. Then came the edits

      2 June 2025

      Digital fortress: We go inside JB5, Teraco’s giant new AI-ready data centre

      30 May 2025

      Sam Altman and Jony Ive’s big bet to out-Apple Apple

      22 May 2025

      South Africa unveils big state digital reform programme

      12 May 2025

      Is this the end of Google Search as we know it?

      12 May 2025
    • TCS

      TechCentral Nexus S0E1: Starlink, BEE and a new leader at Vodacom

      8 June 2025

      TCS+ | The future of mobile money, with MTN’s Kagiso Mothibi

      6 June 2025

      TCS+ | AI is more than hype: Workday execs unpack real human impact

      4 June 2025

      TCS | Sentiv, and the story behind the buyout of Altron Nexus

      3 June 2025

      TCS | Signal restored: Unpacking the Blue Label and Cell C turnaround

      28 May 2025
    • Opinion

      Beyond the box: why IT distribution depends on real partnerships

      2 June 2025

      South Africa’s next crisis? Being offline in an AI-driven world

      2 June 2025

      Digital giants boost South African news media – and get blamed for it

      29 May 2025

      Solar panic? The truth about SSEG, fines and municipal rules

      14 April 2025

      Data protection must be crypto industry’s top priority

      9 April 2025
    • Company Hubs
      • Africa Data Centres
      • AfriGIS
      • Altron Digital Business
      • Altron Document Solutions
      • Altron Group
      • Arctic Wolf
      • AvertITD
      • Braintree
      • CallMiner
      • CYBER1 Solutions
      • Digicloud Africa
      • Digimune
      • Domains.co.za
      • ESET
      • Euphoria Telecom
      • Incredible Business
      • iONLINE
      • Iris Network Systems
      • LSD Open
      • NEC XON
      • Network Platforms
      • Next DLP
      • Ovations
      • Paracon
      • Paratus
      • Q-KON
      • SkyWire
      • Solid8 Technologies
      • Telit Cinterion
      • Tenable
      • Vertiv
      • Videri Digital
      • Wipro
      • Workday
    • Sections
      • AI and machine learning
      • Banking
      • Broadcasting and Media
      • Cloud services
      • Contact centres and CX
      • Cryptocurrencies
      • Education and skills
      • Electronics and hardware
      • Energy and sustainability
      • Enterprise software
      • Fintech
      • Information security
      • Internet and connectivity
      • Internet of Things
      • Investment
      • IT services
      • Lifestyle
      • Motoring
      • Public sector
      • Retail and e-commerce
      • Science
      • SMEs and start-ups
      • Social media
      • Talent and leadership
      • Telecoms
    • Events
    • Advertise
    TechCentralTechCentral
    Home » Editor's pick » Why contrarian Allan Gray holds Naspers

    Why contrarian Allan Gray holds Naspers

    By Editor22 April 2015
    Twitter LinkedIn Facebook WhatsApp Email Telegram Copy Link
    News Alerts
    WhatsApp
    The mascot of Tencent's QQ instant-messaging service. Naspers owns a one-third stake in Tencent
    The mascot of Tencent’s QQ instant-messaging service. Naspers owns a one-third stake in Tencent

    As famously contrarian investors, the one stock Allan Gray might be thought least likely to hold is Naspers. Besides being the flavour of the market, the counter is trading on multiples that most value investors wouldn’t want to be anywhere near — an historic price-to-earnings ratio of 110 times, and price-to-book of over 10.

    Yet Allan Gray owns about 1% of the company for its clients. That is a total investment of in the region of R7,7bn.

    Although Allan Gray has not bought any Naspers stock for a while — portfolio manager Duncan Artus says that it last bought closer to R1 000/share rather than the nearly R2 000/share it is trading at these days — it nevertheless looks incongruous. Why would the asset management company esteemed for being contrarian hold the JSE’s most loved stock?

    “It is true that you are more likely to value in shares that have gone down a lot, and that shares that have gone up a lot will be more expensive,” Artus explains. “But it’s not always that simple, otherwise you wouldn’t need analysts.”

    Which is one way of saying that there’s a complicated answer coming.

    For a start, Naspers carries a weighting of less than 2% in the Allan Gray Equity Fund and less than 1% in the Balanced Fund. As such, it is actually one of their biggest underweight positions.

    In that sense, one could argue that being underweight on Naspers is in itself contrarian. Allan Gray is far less exposed to the counter than the majority of equity and high-equity multi-asset funds in South Africa, many of which have the stock as their largest holding.

    The second part of the answer is that valuing Naspers might not be as simple as looking at its metrics. There is an argument to be made that Naspers defies traditional valuation methods, primarily because most of its value is derived from its investment in Tencent, a distinctly non-traditional business.

    The way we are used to seeing businesses progress is that they go through a growth phase while they are small enough to expand rapidly, but the bigger they get the more difficult it becomes to sustain both growth and margins as they face increased competition. However, with platform businesses like Tencent, it may actually be the case that the bigger you get, the easier it is to make more money.

    “This may be an interesting time in history, but if you look at Netflix or Facebook, the bigger you become the better your competitive position becomes and so you earn higher returns,” Artus says. “Normally competition eats into your margins, but with these platform businesses once you win, you win.

    “If you’ve got the most users people will keep launching their apps and games and other products on your platform,” he explains. “Why would they go to a platform with 10 000 users, when your platform has 10m? ”

    Businesses like Tencent also have very little in the way of capital expenditure requirements.

    “If a retailer has to expand, for instance, they have to invest in new stores,” says Artus. “ But Tencent probably needs to hire a few more software people, and that’s about it.”

    This means that the company has huge free cash flows, which gives it the capability to buy just about anything it likes the look of. That feeds growth and subsequently more cash flows and so the cycle continues.

    The Naspers head office in Cape Town
    The Naspers head office in Cape Town

    What we perhaps don’t know, however, is how the growth path of a company like this plays out. Tencent is itself currently trading on a price-to-earnings multiple of close to 50.

    Should we assume that this is a natural level for a company of this type? No company has ever before sustained that kind of growth in perpetuity. So is there a limit, and how do we know where it is?

    One thing to consider is that there must be a finite amount of time that users can spend online on any single platform. There must be a saturation point. However does anyone know how near or far away we are from that?

    This question might not point to clear and present danger, but there are other obvious risks to owning Naspers at these levels.

    “I don’t think we’d be telling people that Naspers is an incredibly cheap share,” Artus says. “You have to treat it with caution because you can see it going up, but equally you can see that argument that it is overpriced. You can probably make the case for three different valuations.”

    What happens, for instance, if Tencent comes out with a profit warning? At current levels, there would be an awfully long way it could fall.

    All of this makes Naspers probably the most interesting share on the JSE. Deciding where it still represents fair value is probably a question debated by analysts at every asset management firm in the country. And it is a question that will become more and more taxing as long as the share keeps appreciating.

    “We’ve spent a lot of time trying to understand Naspers,” Artus says. “You need to have a lot of confidence in why you own it.”

    • This article was republished from Moneyweb with permission


    Allan Gray Duncan Artus Naspers Tencent
    Subscribe to TechCentral Subscribe to TechCentral
    Share. Facebook Twitter LinkedIn WhatsApp Telegram Email Copy Link
    Previous ArticleSABC deal allegations ‘ridiculous’: DStv
    Next Article Mobile data boom in SA townships

    Related Posts

    China is behind in AI chips – but for how much longer?

    13 June 2025

    Amazon turns up the heat on Takealot

    3 June 2025

    Top executive steps down at Prosus

    3 June 2025
    Company News

    Huawei Watch Fit 4 Series: smarter sensors, sharper design, stronger performance

    13 June 2025

    Change Logic and BankservAfrica set new benchmark with PayShap roll-out

    13 June 2025

    SAPHILA 2025 – transcending with purpose, connection and AI-powered vision

    13 June 2025
    Opinion

    Beyond the box: why IT distribution depends on real partnerships

    2 June 2025

    South Africa’s next crisis? Being offline in an AI-driven world

    2 June 2025

    Digital giants boost South African news media – and get blamed for it

    29 May 2025

    Subscribe to Updates

    Get the best South African technology news and analysis delivered to your e-mail inbox every morning.

    © 2009 - 2025 NewsCentral Media

    Type above and press Enter to search. Press Esc to cancel.