Research archive for NPN

Naspers, the stock moved higher as news came through that Chinese regulators have allowed Tencent to open a private bank, Webank is the name, Tencent will own 30 percent, the rest by private businesses and individuals.

It was announced yesterday that Tencent have made another acquisition in the online retail sector. This time they have bought a 19.9% stake in a Nasdaq listed business called 58.com for $737 million. Here is a description of the company from Google Finance.

One of the most followed stories and right in the heart of the debate around bubbles and valuations in the local market, Naspers, reported numbers this morning. These results are for the full year to end March 31. And in so much that things stay the same, they certainly move forward with a lot of pace. There are many segments of the market that have been telling everyone else, with a lot of energy, that you should not buy Naspers and that it is completely overvalued.

In light of the recent AT&T intention to acquire DirecTV for 49 billion Dollars (the share price of DirecTV is telling you it may not happen), I was suddenly struck by how many people discount the DSTv business inside of Naspers. When people talk about Naspers, you are always saying, oh well, this is a proxy for TenCent, and then South Africans in their infinite wisdom apply a discount to the TenCent valuation in their valuation of Naspers. All rather complicated if you make it "like that", but that is part of trying to determine the value of any business that is in the public domain when investing real money. When you buy shares in a business, you part with your hard earned money (someone banks it on the other side) at a particular price. You, as the shareholder are then entitled to a share of the profits, you know that of course!

Holy smokes, Naspers absolutely crushed it yesterday. For one reason only, their 34.5 percent holding in TenCent. This is no Candy Crush, this is a TenCent earnings crush, absolutely blowing expectations out of the water. Because the business is growing so quickly the earnings need to keep pace, no, let me rephrase that, the earnings need to beat expectations, because the market has priced in aggressive growth. One earnings stumble and the pain is going to be too much to bear. Numbers came in for the Chinese internet giant post the market there, in fact long after the market had closed. I had waited for these results from earlier in the morning, the Hong Kong market closing bell rings exactly at the same time that the opening bell rings here, so there is (other than the auction process) no overlaps.

What happened to Naspers shares? Well, like we tried to point out yesterday, the same things that have happened to LikedIn, Twitter, Facebook, even Google to a lesser extent. Naspers share price peaked near the ides of March (this year) at 1354 ZAR a share. Since then the traffic has been in the wrong direction, if of course you are long the stock. Last evening the share price closed at 1041 ZAR a share, down over 300 Rand from their highs. Forget for a second that over the last year the share price is up 87 percent plus, I can tell you that most people care about what has happened in the last three weeks. For one, the TenCent news has been negative, the results themselves were light of expectations. When a company is priced for growth, the problem is a miss is often met with aggressive selling across the board.

If you are an investor in Naspers you would know or at least should know that their Tencent stake is extremely influential on their share price. In fact if you plot the Tencent share price to the Naspers one the correlation will be very strong. I was asked on CNBC the other day whether management would be worried about the share price movements of Naspers in relation to the volatile Tencent price. My short answer was no, management would not be focusing on the share price, they will be focusing on operations within the business and whether they still think Tencent is a good asset under the Naspers umbrella. If you look at the direction of the Naspers business model, Tencent fits in perfectly with the mix. I expect them to hold that stake for many years to come, if not forever.

Since the 6th of March the Tencent share price has lost nearly 15% in value. Over that same period the Naspers share price has decreased 9.2%. Movements in the Rand as well as other moving parts within the Naspers group are reasons for the deviance. But why the big fall? Basically the Chinese central bank have temporarily shut down two important forms of smartphone payments which predominantly work as virtual credit cards. Apparently they do not understand the technology enough to allow it go ahead unregulated.

It makes me mad. Perhaps I have not understood it well enough to take anything but a subjective view. But the story from TechCentral titled: MultiChoice a bullying monopoly: Carrim is well worth a read. Yes, Multichoice is a monopoly, but it was funded entirely by private interests in the errrr ... interest of their shareholders. DStv did not just happen overnight. And if the offering was not worth the price, people would make up their own minds and watch the alternative, lest I remind you, SABC. Where things are seemingly going poorly, for a long, long time. And you still paying your licence? Because you know, it is the right thing to do.

I was trying to figure out how big the TenCent 15 percent purchase of JD.com is. And whilst everyone knows the number, 215 million US Dollars, with the possibility of another 5 percent when JD.com lists on the NASDAQ, the listing date according to their filing -> JD.com, Inc is unknown, but expected later this year. Stop for a second here, who is JD.com? Well, the former name is 360buy.com, the business itself is just over a decade old, but more importantly it is the second largest ecommerce business in mainland China. After Alibaba, which retails their online goods under brand names such as Tmall.com and Taobao.com.

After the Koos Bekker news, Naspers short tremors had something to chew on, the stock eventually ended the session higher. Up 1.5 percent on the day, well, 1.46 percent to be exact. The stock nearly crossed 1300 Rand for the first time and is up nearly 19 percent year to date. TenCent, listed in Hong Kong, how has that done? Well, it should come as no surprise whatsoever that TenCent is up 18.2 percent year to date and is trading near their all time highs. So, follow TenCent and that will = Naspers. For now.

Oh dear, Koos Bekker is stepping down at Naspers, that was announced on Saturday. The official .pdf is available for download: NASPERS ANNOUNCES CEO AND CHAIRMAN'S SUCCESSORS. Bekker is only 61, but I guess after an interrupted 17 years at the helm of Naspers, the timing is probably right. The appointment of Bob van Dijk, who is currently head of ecommerce tells you the direction that Naspers are heading in. You will recall that Koos Bekker made remarks about satellite TV being a business in decline (notwithstanding the additional subscribers across the continent time after time), and saying that ecommerce was going to be the next big thing. There are of course many working examples today, Amazon.com of course the one that strikes you as the leader in ecommerce.

This is amazing. Really amazing. Listen in really closely. What prompted me to do the calculation of what is the TenCent stake inside of Naspers worth was a client email expressing concerns around the valuation. Naspers is a difficult one to value. But my go to calculation is the stake in TenCent and then using the rest of the company and their other quality businesses to is pretty simple. Take the TenCent market cap in Hong Kong, which right now is 967.37 billion Hong Kong Dollars. Naspers owns 34.5 percent of TenCent, that translates to 333.74 billion Hong Kong Dollars. Now one Hong Kong Dollar is equal to 1.4219 Rands. So, quite simply, multiply 333.74 billion HKD by 1.4219 and that equals 474.54 billion Rand. Yowsers.

Naspers reported their six month numbers yesterday. But before we get into that, Meloy Horn, an ex analyst and now investor relations contact at Naspers and her team do a fabulous job in explaining what Naspers is. Here goes their business overview, Fact Sheet - November 2013 and here is the group structure, which segregates the business into pay TV, internet and print. Print is the local media 24 business (60 magazine titles and 50 newspaper titles) and the 30 percent stake in the Brazilian business Abril and a teeny weeny stake in two Chinese businesses. The Pay TV part of the business is where the company was able to lift their presence and drive acquisitions using the strong cash flows associated with pay TV into their internet businesses. Which are then segregated further into e-commerce (where CEO Koos Bekker thinks the next big growth is). As well as the significant stake in TenCent (which basically makes up the most of the current share price) and Mail.ru.

As I write this piece Naspers is sitting on a P/E of 54, with their major source of earnings, Tencent sitting on a P/E of 42. There are two reasons for having such high ratios, the first is that the current earnings are very low due to an unforeseen expense, or as is this case the market expects very high growth rates. Are these P/E ratios too high and the stock price unsustainable?