written by reader Naspers: A way of owning Tencent at a discount?

By mxa03u, June 6, 2020

What do you think of the South African company Naspers (also traded OTC on a US listing) as a way of owning Tencent at a significant discount?

As far as I’m aware they still own a sizeable stake in Tencent (10%) as well as Flipkart and other less well known companies. I’m unsure if any were sold but their market cap would imply them trading at around a 50% discount to book value.

I noticed that Naspers was the second most major holding of the Baillie Gifford Alpha Growth ETF with it’s top holdings matching the names of my favorite holdings in my personal portfolio – Amazon Microsoft Alibaba, Alphabet.

Is it worth considering or have I done my maths wrong?

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Travis Johnson, Stock Gumshoe
June 11, 2020 4:11 pm

Here’s part of what I wrote about Naspers and its spinoff Prosus about a month ago:

Prosus is the global technology investment arm that was spun out of Naspers last year and listed in Amsterdam, in order to raise its profile a bit, hopefully decrease the discount to its investments at which Naspers was trading, and create a bit more liquidity in this business by getting it out of the South African exchange (where it was by far the largest company) and listing it in Europe, a continent desperate for some exciting “homegrown” technology companies.

And while Naspers has been around for eons as a South Africa media company, for most of the past 15 years it’s been thought of as just “those guys who got in early on Tencent.” Naspers invested in Tencent when it was a tiny startup, buying about a third of the company for $32 million in 2001 when it was just a little internet chat technology firm developing a Chinese version of something like AOL Messenger. That stake, now at 31%, is now worth roughly $165 billion as Tencent has grown to become a global colossus and Naspers somehow resisted taking profits… so yes, this is one of the greatest investments in the history of the world, and that valuation has driven Naspers and now Prosus ever higher, becoming such an overwhelmingly huge portion of the business that almost nothing else they does can possibly matter to shareholders.

And by the way, for those who lament that they might have bought something too late, or missed the boat, do note that although the value of that Tencent stake for Naspers (now Prosus) has increased by about 515,000% over 19 years… that’s “only” a compounded annual growth rate of about 57%. 500,000% might seem incomprehensible, but 50% gains sound more do-able — the trick is to find investments that can compound for 20 years as companies mature and evolve, to turn great returns into life-changing ones, and the super-double-difficult trick is NOT SELLING along the way. How much would you have wanted to sell your Tencent shares after five years to take your profits, with maybe 1,000% or 2,000% gains?

Prosus (PRX in Amsterdam, PROSY or PROSF OTC in the US), is currently valued at about $135 billion, so that’s roughly a 19% discount to the value of the 31% of Tencent that Prosus owns. Naspers before them traded for years at a similar discount to the value of that Tencent stake, sometimes getting to near 40% when sentiment was negative about the South Africa connection, or the ability of Naspers to do anything beyond that Tencent investment.

And Naspers (NPSNY) still controls Prosus, by the way, with a 74% stake, so Naspers shares represent a discount on top of a discount — 74% of Prosus should be worth $99 billion, yet Naspers in South Africa currently has a market cap of $73 billion, so that’s a 26% discount on top of a 20% discount. Which adds up to roughly a 40% discount, pretty much as big as the biggest historical discount at which Naspers has traded in the past. They didn’t get rid of the discount, they just spread it out a bit… part of it is still in South Africa, part of it has moved to Amsterdam.

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