David Shapiro on whether Naspers and Prosus remain good investments 

South Africa’s favourite market commentator David Shapiro sheds light on Naspers and Prosus results, which have been eagerly anticipated by the market. Naspers and Prosus have been drags on the performance of the JSE, with its crown jewel Tencent under intense scrutiny following Chinese regulatory crackdowns. Tencent’s underlying performance within the stable, however, was promising and contributed 118% of Prosus’ operating profit. This means the rest of the e-commerce businesses within the group lost money, despite having a valuation of close to $50bn. Bob van Dijk and his management team have been bullish on industries such as Food Delivery, with many analysts concerned about the performance of its e-commerce portfolio. Shapiro says it will take many more years for the e-commerce unit to contribute materially to earnings, and that Tencent will continue to be the driver of performance for the two businesses for the foreseeable future. – Justin Rowe-Roberts, Investment correspondent

David Shapiro on Naspers and Prosus results:

I like to break down the divisions and look at contributions; the first place I go to is the segmental breakdown to see how much money they are making out of the acquisitions and who contributes. When you look at it, you come down to the raw detail. It’s still Tencent that makes up about 118% of operating profit. That means all the other divisions are taking away 18%. Where I’m getting it is that it’s going to take a long time before those other businesses and the acquisitions that they made begin to shift the needle. They might be in the right direction; they could be working there but the numbers from Tencent are just so huge, it’s going to take a big, big chunk.

Also remember, they sold 2%. So, they took all this cash, brought in other acquisitions and therefore we haven’t even adjusted for that. It is going to take a long time. No matter how we spin the tale, it’s still Tencent that’s going to dictate whether this company makes money or what the profits look like. The shares – both Naspers and Prosus because of Tencent’s non-performance – have been on the JSE this year. They continue to be negative (year to date) at a time where everything else seems to be performing. 

On Tencent’s performance in Naspers and Prosus results:

It’s strong. The performance was up 20% or 30%, around there. Whatever it is, I can’t remember the exact details … I think up 24% on revenue. It is still a pretty good underlying performance. We can’t ignore Tencent as a business. I know it’s been under scrutiny but even when I went through the Tencent results, they seem to be restrained in the way they looked forward, very nervous of offending the Chinese authorities. But they continue to grow the business and I believe there is quite a bit of opportunity for Tencent to grow.

I prefer Tencent to Alibaba and prefer it to some of the tech companies within China. They’re being held back by the regulatory crackdown, particularly on the gaming side. That has hurt them. And also, of course, monetising their opportunities. They are nervous to go out and advertise and monetise what they can do. But, over time, that will start to pick up, so I have turned more in favour of Tencent than perhaps Alibaba, but it dictates where Naspers and Prosus will go. 

On whether CEO Bob van Dijk is the right man for the job:

We have got to give him a chance. I cannot really criticise him from that point of view because we do not know what businesses are out there and what his policy is. He seems to identify where he wants to go. We listen and we read the commentary. But when we look at the sheer numbers, it’s going to take a long time. There is nothing there that stood up and smacked me in the face and said, “Boy, this is growing. This is really looking solid.” It just seems to be little bits all over the place with the hope that your lucky number comes up and something strikes. But I don’t think any of the businesses that I’ve seen are going to match the kind of position that Tencent has.

On the non-Tencent part of the portfolio: 

A lot of money goes into these businesses and it takes a long time before they start to contribute but eventually they get to contribute. You want to see the numbers coming through; food delivery, for example. Everybody talks about it. It’s a great business; hopefully, they can utilise food delivery for other services. I’m waiting. 

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