The world is changing fast and to keep up you need local knowledge with global context.
In less than a week, I’m going on a well-deserved break. A friend and I (don’t worry, we’ve both been in isolation for well over 10 days now) have rented a car and are heading up to the Northern Cape for a bit of R&R in the desert.
Why the dry, desolate Northern Cape? Well, I’ve always said there’s no point in describing yourself as well-travelled if you haven’t seen everything your country has to offer. I haven’t been there in ages and my friend hasn’t ever, so why not? More importantly, we thought it best to avoid the areas that will be overpopulated due to an influx of tourists.
Anyway, I love my country. I think it’s a majestic landscape filled with the most glorious sights. Magisterial mountains, shimmering beaches and wildlife to send Attenborough into a dizzying fit of excitement.
This is certainly reflected in my share portfolio. It’s decidedly local, if you ignore the Tencent link through Naspers and the emerging markets ETF. The rest is proudly South African. Tongaat (which has given my portfolio a healthy boost) and Discovery – bought after listening to the latest BizNews Global Portfolio update (listen to that here).
Still, maybe 2021 is the year I broaden my wings and take things international. I’ve been thinking about it for quite some time. The idea of owning shares (albeit just a smidge) in prestigious companies such as Tesla and Apple is tempting. But then the guilt sets in. Why should I invest overseas when there are so many excellent companies in South Africa offering a slice of their tasty, homemade pie?
I suppose personal finance is no place for sentimentality. But then again, this portfolio was started with the idea of learning – and if losing is a part of that, so be it.
I’ve been looking at companies that offer products and services I use and enjoy – Beyond Meat, Apple and Nike – and seeing how they perform (not without doing some homework, of course.)
Tesla is on my radar. After all, Mr Musk was born in South Africa…
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University, shares his expert advice by providing answers to your questions.
Ravi Moodley asked,
Could you provide me with any advice / suggestions as what to do with African bank shares that I bought 4 yrs ago? Their current value is approximately R40,000. These are shares of the holding company of the original African bank, that almost collapsed. The company made a decision early this year to buy back shares before delisting, but I chose to retain my shares, as it would have resulted in a 50% loss on my original purchase price.
Any thoughts as to whether I should attempt to get the company to buy back my shares or whether I should hold on, with the hope, that the company may relist at some future point. I do not foresee needing the cash (current value R40k) anytime soon.
This is a tough one. Unlisted shares are difficult to sell at market value because there is no liquid market for the shares. Furthermore, it is difficult to obtain relevant fundamental data to make an informed decision. The decision to sell the shares should be based on your opinion about the prospects of the company. If you are happy to hold on to them in the hope that they will pay some dividends, and you do not need the funds, then it is probably best to hold on to them for now. As you rightly mention, the company may decide to pursue a listing again in the future, which will allow you to sell the shares.
Scott Gordon asked,
Naspers has done well with its investment in TenCent. It boosted the share price here. Just how does Tencent pay dividends? Earning per share and so on. I would like to be educated on this.
It will be an understatement to say Tencent has been a good investment for Naspers. It has been a phenomenal investment! The $32 million investment in 2001 in Tencent, is worth roughly $214 billion today. Given that the entire market capitalisation of Naspers is only about $90 billion (from Bloomberg), Naspers trades at a considerable discount to the value of its investments. It is slightly more complicated to calculate the actual discount, because Naspers holds its share in Tencent through Prosus, where it has 72.5% ownership.
The observed holding-company discount stems from investors’ perception of the company’s ability to effectively invest its Tencent returns. According to the latest financials, Tencent contributes roughly 31% to Naspers group trading profit. Although the dividend yield of Tencent is quite low (0.21%), because it uses its capital to make investments as opposed to paying it out as dividends, Naspers still receives dividends from Tencent of US$458m per year. As a potential investor in Naspers, one needs to consider a number of key questions.
On the one hand you need to form an opinion about whether the holding-company discount will narrow in the future. This will depend on the company’s attempts to decrease the discount by buying back its own shares. In addition, it is necessary to form an opinion about the growth prospects of Tencent, which is already a behemoth. But Tencent is well placed to grow in a number of exciting industries, such as gaming, social media, ride-hailing, retail, online media, and electric-car manufacturing. Tencent trades at a PE ratio of 37 times and Naspers at 39 times.
- Johan Steyn, CFA is a lecturer in investment management, from the department of business management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected].
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