Research archive for NPN

Tencent released their first quarter numbers yesterday, after the Hong Kong market had closed for business. There is a Tencent ADR in New York (I was watching that too closely yesterday afternoon) and of course you get the sense that Naspers trades as a proxy for Tencent. Huh? Remember the old trust calculator? No, OK, there is no harm in doing the simple math again:

Oh. A pretty small announcement, a little after the market closed here last evening. An announcement from Naspers that The Capital Group Companies (on behalf of their clients) had acquired a stake in Naspers of 5.017 percent of the company. Who? Who are they, The Capital Group Companies? It is a worldwide investment house, headquartered in the US, Los Angeles to be exact. Assets under management, according to their website were 1.25 trillion Dollars as at the end of 2013. I suspect that they did well in 2014 and that number has grown. I presume also that this investment will be inside the Capital Group Screened Emerging Markets Equity Fund, which is domiciled in Luxembourg (I think). The fund has a 3.3 percent weighting towards South Africa, it is relatively small by global standards and was founded only in August of 2011. 86 million Dollars of assets under management. 5 percent of Naspers is around 39 billion Rand. Simple calc suggests that this cannot be the fund that houses all of the Naspers stake, around 3.2 billion Dollars worth.

Two bits of news yesterday from Naspers. The first being that non exec chair of Naspers, Ton Vosloo has resigned from the group. He has been chairman for 23 years. He has been a board member for 32 years. Ton was a journalist from 1956 to 1983, he was editor of the Beeld from 1977 to 1983. He knows how to use a typewriter, I am guessing that he has not used one for two decades however, I may be wrong. He is 76, been working for 50 years plus (admittedly in a non executive capacity since 1998 at Naspers, it is still hard and stressful work). Ton was managing director of Naspers from 1984 to 1992, executive chair thereafter until 1997, and has been in this role since then. Ton will take 160 thousand shares, currently worth 292.8 million Rand into retirement with him.

At the start here Naspers have blown through 2000 Rand, as a result of TenCent having crested 170 Hong Kong Dollars for the first time. Perhaps it is time for a refresher in terms of the, what Naspers is worth question. Their results for the full year to end March were released in June of last year. If there is to be a trading update, there could be one at any time in-between now and then, looking back over the years and more especially at the interim phase, the trading statement was ten days before results. End of June says the investor relations calendar, 29 June to be precise.

Yesterday the big news on the company front was the 4Q and full year results from Tencent. Given the high multiple that the stock trades on the results always lead to big moves of the share price; it is always hard to price a company that grows at 50% a year and then try to forecast what the company will look like in one or two years time.

TenCent fourth quarter earnings are set for release on Wednesday, expectations are for earnings of 0.66 Renminbi per share. Remember however that the company is listed in Hong Kong, where there is a different currency. The inter-webs tells me that the ratio is 1.24 Hong Kong dollars to 1 Renminbi, the expectations are therefore 0.82 Hong Kong Dollars of earnings relative to the share price of 135.5 Hong Kong Dollars. The company would earn, at that level, 2.57 Hong Kong Dollars per share. The stock would then at these levels trade on a historic price to earnings multiple of 52 times. A really lofty historical multiple by any standards of any sort. Earnings however grew by 55 percent on the prior year (if we believe these expectations) meaning that the stock trades on a PEG ratio (price to earnings over growth rate) of less than 1.

Tencent. Yes, I know you are getting tired of the same news day after day, about Tencent and the associated impact on the Naspers share price. This one however is about WeChat, the messaging app that is big in China. It is messaging in China. Whilst WhatsApp a couple of days back might have clocked 700 million users, as a result of the nature of the Chinese internet landscape (censored media), I suspect that WeChat will struggle to get many more users from here. The application is international, we are encouraged to use it here on the DSTV platforms, makes sense for them to punt that.

Naspers is up smartly this morning. There was a Barron's article titled Tencent Is China's Facebook, J.P. Morgan Ups To Buy. Naspers trades higher as a result of the Tencent price having caught a serious bid, that stock in Hong Kong was up 3.67 percent in their market to 124.4 HKD, JP Morgan has a 12 month price target of 160 Hong Kong Dollars. A quick refresher for all of you on what the portion inside of Naspers is made up of their holding in Tencent -> 33.85 percent of the Tencent market cap (1.11 trillion HKD) at 1.51 ZAR to the HKD = 568 billion Rand. Last evening, Naspers had a market cap of 663 billion Rand. The gap is certainly widening, perhaps the realisation that their (Naspers) businesses are worth more!

I suspect that this is pretty big news and has been coming, so no major surprises. Tencent launches China's first online-only bank is the FT headline. Perhaps the innovation that we all require is here, humans need not access branches (or cash for that matter) and perhaps it will take a large Chinese company like Tencent to shake up the banking industry. I am not too sure how that makes us feel about the longer term prospects of owning the company as a technology company, when they will be giving smaller businesses credit lines (businesses of that size have struggled to get loans in China), I guess it is tiny for now.

Naspers released their 6 months number to September this morning, these results were so highly anticipated that I hardly slept last evening. No, not true at all, I slept like a baby, you know, I woke up every three hours crying for food. Naspers are a business in another transitional phase, they are setting themselves up to become a major ecommerce player globally, and of course becoming more dominant in the mobile space, the whole idea of shopping on your phone. Naspers have a whole lot of interesting slides in the Financial Results Presentation, including the one that suggests that in emerging markets there could be more than double the number of mobile internet users in the developed world in 2018 than currently. They measure that against a relatively flat number in developed markets, here is the slide that I am talking about:

Another day, another set of Naspers news, this time it had to do directly with earnings. This was a trading update for the six months to end September, the first half of Naspers' financial year. Earlier in the day the stock had seen a serious leg up on the news that they were entering into JV's with separate businesses around the developed world to pursue classifieds. I am not too sure about you personally, it is not something that I spend a lot of time doing, looking at classifieds. I suspect that the classifieds of yesteryear and the classifieds of today are browsed in a very different manner.

Naspers, what has happened there? Here it is: Global classifieds platforms combine to deliver superior customer experience. It looks rather complicated, deals with Schibsted Media Group (from Norway), Telenor Group (also Norwegian) and Singapore Press Holdings (no surprises, from Singapore) have teamed up with Naspers, the common partner, to establish JV's in Brazil, Indonesia, Thailand and Bangladesh. I checked the demographics there, Brazil has more than 200 million people, Indonesia, more than 250 million, 66 million people in Thailand and lastly Bangladesh, 157 million people. Astonishing really, nobody is suggesting instant success, Naspers and their partners can replicate their successes in other emerging markets, China, Eastern Europe and India, in classifieds. It is all part of the sharing economy.

Tencent released their numbers about halfway through our session here yesterday, a little after midday. These were numbers for their third quarter to end September, you can download the release here: 2014 Third Quarter Results. Revenues are all measured in Chinese Yuan, Remnimbi, for the purposes of this conversation we will of course talk about the share price of Tencent in Hong Kong Dollars, the impact on Naspers in Rand terms, the results however in Chinese Yuan.

Diving into the Q2 figures from Tencent yesterday. The figures were higher than the already lofty expectations, with net profit for the quarter sitting at 5.84 billion Yuan (analysts were expecting 5.51 billion) and revenue for the quarter was 19.75 billion Yuan (analysts were expecting 19.2 billion).

We saw Naspers release their annual report late last week, it is always a fabulous time to re-look at the company as an investment and see whether the reason you still hold them rings true. On an out and out earnings basis, the company is expensive, that much is true, on an NAV basis you are getting all the rest of the business for free. So it seems that the local market discounts the heavy weighting to Tencent and in doing that suggests that Tencent should be worth less.