One year on, Prosus fails to solve Naspers share quandary

2020-09-13 07:54:00 PM

The problem the listing in Amseterdam was designed to solve is worse than ever

ByHILARY JOFFEIt's a year since the complex deals in which Naspers hived off its international internet assets came to fruition with the listing of Prosus in Amsterdam, but the problem the listing was designed to solve is worse than ever.And with the group getting flak in the media, locally and abroad, Prosus and Naspers CEO Bob van Dijk has sprung to the defence of the strategy. But he has promised to do more to tackle the deep discount at which the market values the group's shares - which is wider now than before the group announced the deal. With Naspers's spectacularly successful 31% holding in Chinese internet platform Tencent still dominating group value and earnings, analysts say Van Dijk needs to start proving the worth of the group's other assets if he is to fix the fundamentals beneath the discount.Naspers is now trading at a 53% discount to the sum of its parts, including its 72% stake in Prosus. Prosus is at a 30% discount. If you put them back together they would be trading at a 46% discount - higher than the 43% discount at which the Naspers share was trading the night before the company announced its intention to do the Prosus deal. At its lowest just before the Amsterdam listing, the discount had narrowed to just 18%. That's prompted some to ask whether it was worth it. But Van Dijk says he is happy Naspers did the listing."We have diversified our shareholder base, with new investors coming in, which is exactly what we were hoping for," he said in an interview. Given that the Naspers share has outperformed the JSE"by a mile" in the past four or five months of the Covid-19 crisis, if the group hadn't done the deal Naspers would by now have been well over 30% of the JSE index, he said.It was that dominance of the JSE that the Prosus listing intended to address: it made local fund managers into forced sellers when the share price went up because they were overexposed and that weighed on the share price, driving up the discount.But the share's outperformance - the Naspers share is up 26% on the JSE this year - has driven the combined Naspers/Prosus back up to 28%-29% of the JSE's Swix index, from about 25% before the deal was announced - and a low of 18% on the eve of the Prosus listing."We are victims of the growth in the share price but we firmly agree the discount is an issue we need to resolve and we are focused on doing that," said Van Dijk. The group is looking at other structural options, he said, but he won't commit to a timeline or detail what the options might be.The big question investors ask - one that The Economist magazine asked again recently - is what is the point of Naspers/Prosus, given that its Tencent stake is worth more than the whole group; all its other core internet assets - in classifieds, payments and food delivery - have a negative value. "The most important thing we can do is to build out the other segments and we are making good progress," Van Dijk said. Prosus is due to join Amsterdam's top 40 Stox index later this month and that is expected to help, attracting index funds and putting the stock on the radar screens of European investors. Mergence Investment Managers head of equities Peter Takaendesa said:"The discount matters but we would prefer that anything they come up with is a sustainable long-term solution, instead of a short-term solution which probably would be reversed quickly by the market." Crucially, investors wanted to see what the group could do with the"rump assets" - the international e-commerce assets other than Tencent. With the Tencent stake contributing 120% of Prosus's earnings, the other assets are still a drain on earnings and cash, and the group still has to show that they can succeed in competitive markets.Analysts abroad like the share, which is one of the largest listed on Amsterdam's AEX index, and is Europe's largest consumer internet play. But they, too, are asking when the group will deliver value from its other businesses and whether Prosus will take advantage of its listing to make more acquisitions. Two recent attempts to do big acquisitions ran aground, with the group balking at the price for UK-based Just Eats, and walking away from eBay classifieds because the vendors wanted to do a merger, not a sale. But Van Dijk said Prosus invested $1.4bn (about R23.5bn) in mergers & acquisitions last year in deals which were a good strategic fit with its core business, and it would keep looking.In SA, too, it's still looking for opportunities, Van Dijk said, but nothing in particular at the moment. He went on record last year after the competition authorities blocked Naspers's proposed acquisition of We Buy Cars, asking if SA really wanted to attract more investment from the group. But, he said,"we have roots in SA and we would love to do more if we see the right opportunities; the same holds for the rest of Africa".Naspers's portfolio in SA includes Takealot and Mr D Food as well as News24 and PayU, and it sees the e-commerce market growing with internet and smartphone penetration going up - trends that Covid has accelerated. Naspers estimates e-commerce now has a 2.6% share of SA's retail market.

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