Cheaper entry into TenCent

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!

But let me deal with one thing at a time, firstly, the value in Rand of the TenCent stake relative to the Naspers share price. Our trusty calculator is as follows: Take the TenCent market cap in Hong Kong, which right now is 1040 billion Hong Kong Dollars, or 1.04 trillion HKD. Naspers owns 33.85 percent of TenCent, that translates to 358 billion Hong Kong Dollars. Now one Hong Kong Dollar is equal to 1.34 Rand. So, quite simply, multiply 352 billion HKD by 1.34 and that equals 471 billion Rand. That number in Rand terms has not changed much, even though the HKD to the ZAR has not been in Naspers' favour i.e. The Rand has strengthened to the Hong Kong Dollar. At last close, Naspers had a market capitalisation of 498 billion Rand. So, in simple terms the "rest" of the business is worth 27 billion Rand. What is the "rest" of Naspers actually worth? -> Naspers results, big e-commerce ramp up coming One of the old Naspers links is broken in there, sorry.

I want to focus on the TV segment for a second. Six month revenues were 17.1 billion Rand, as at the last set of numbers. 7.3 million subscribers. What would you pay for that business? 5.375 billion Rand EBITDA last half. Currently DirecTV (at the lower price) has an enterprise value to EBITDA of 7.7 times. Of course we are not comparing this fruit and that fruit, DirecTV is in the US and DStv is across the African continent mostly, but they are both satellite TV businesses, so that is fair enough, I guess for the purposes of this exercise. Working backwards to determine the enterprise value, and annualising the six month EBITDA to 10.75 billion Rand, you get an enterprise value for DStv (or the TV part of Naspers) of 82.775 billion Rand, or roughly one sixth of the total Naspers market capitalisation. But this I think is a conservative valuation.

But yet the fellows here, in South Africa, in their infinite wisdom, discount the price of Naspers, because from an earnings perspective it is not quite at historical levels. When of course they, Naspers, used to only sell magazines and newspapers. And not satellite TV subscriptions and more importantly, the future being ecommerce businesses, which are currently LOSS making. We can all add. Even the print business makes profits and must be worth more. Even the loss making ecommerce business will be worth something in due course. As luck would have it, I received (for what it is worth) an analyst report which suggested that Naspers is trading at a 25 percent discount to their NAV. And that there could essentially be 50 percent upside in the share price over the next 12 months. Yowsers. But then again, take those brilliant and well researched reports from where it comes, that could change in the next six months. But the argument can equally be made that a cheaper entry point into TenCent is via Naspers, because surely the rest cannot be for free? We continue to hold the stock and accumulate on weakness.