UK-based fund manager Sean Peche has had enough of the brutal value destruction taking place at JSE index heavyweights Naspers and Prosus. He has no emotional attachment or position in either company, however, he believes South African savers are being done a terrible injustice. Naspers and Prosus, by virtue of their size, make up a considerable portion of the JSE All Share Index. As a result, South African pensioners and savers – which would be invested in local passive indexes – have large exposure to the investment-holding giants. Numerous capital allocation mishaps and billions of dollars in value destruction, Peche is calling for a change in leadership at the helm of one of South Africa’s largest businesses. – Justin Rowe-Roberts
On Prosus’ investment into Delivery Hero
This really is what brought this company to my attention because as I said, we don’t own shares in Naspers and we don’t own shares in Prosus. But every day in our morning meeting, we just have a quick look at what the worst and best performers were the previous day. Delivery Hero was the worst performer in the world index one day and the next it was in the bottom 10. So, I wondered whether Prosus had bought some shares in Delivery Hero. I had a look on Bloomberg and they bought 27 million shares last year, with the last tranche bought in October. It cost them €3bn. In fact, they were so keen on this company that they applied to the regulators so they could increase its holding above 25. Now, the other day Delivery Hero issued a trading update, and we are talking to the period end-December, bearing in mind they bought in October. The market was so disillusioned, the stock dropped 40% in two days and is now down 60% on its investment last year, with a R31bn loss. This is value destruction on a monumental scale and they are supposed to understand this business. You’ll recall they tried to buy Just Eat in 2019 for around £5bn. Let’s remember, in 2020, when we were all sitting at home ordering takeaways because we couldn’t go to restaurants, Delivery Hero lost €1.4bn. And now there is more competition, there are more apps and you can go out. It just puzzled me what the interest is in this food delivery. I just cannot believe people delivering burgers on bikes is somehow technology. It wasn’t a surprise to me; I find it staggering that it was a surprise to Prosus and I didn’t have a €3bn bet on this thing.
If the discount is permanent, what is the bet with Naspers/Prosus
Probably Tencent. And you have to ask: what is the Naspers/Prosus board going to do about it? Boards of directors do not sit around to drink tea and shoot the breeze. They are the representatives of the shareholders and there are 18 directors in that Naspers board of directors, which cost $5m in 2020 to run. Just out of interest, Microsoft has 12 directors, not 18, and it cost $3.9m. Google has 11 directors and it cost $4.4m. How can these trillion-dollar operating businesses – which are not holding companies – cost less and have fewer directors? It just doesn’t add up.
On the non-Tencent part of the portfolioÂ
It is staggering. I mean $4.7bn for Billdesk; they had $37m profit and those are unaudited accounts, so that’s 130 times earnings. Just to put it into perspective, that almost five $5bn is a third of the $14.6bn that they raised from selling 2% of Tencent last year. If you sell Tencent and use those proceeds to buy something at 130 times earnings, on unaudited accounts. If I’d known that, I would have said, “Listen, just keep your money in Tencent and we’ll take our chances with the Chinese Government and the VIE structures.” This is not a new market. We have an analyst who lives in India. They are way ahead of everybody else in terms of online payments, via apps and all the rest. In fact, the government is involved. So, I think the chances for profitability are far lower.
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