🔒 Alec Hogg: SA group’s massive share buyback sets stage for our experts

We couldn’t ask for a better way to tee-up Monday’s Rational Radio webinar where the focus is on Big Tech stocks. On Friday, the JSE’s dominant listings Naspers and its Dutch-based subsidiary Prosus, rose strongly in contrast to a very soggy global market. Reason: they announced a $5bn share buyback in another effort to close a hefty discount between their underlying asset value and how Mr Market is judging them.

Also read: Alec Hogg: Smoothing your Wall Street Journal access

Share buybacks are an efficient way to bring stock prices closer to what insiders believe is their true value. They signal that directors of the company believe the business is worth more than the price at which the shares are freely available in the marketplace. Their logic being that acquiring the company’s own stock from willing sellers is a better investment than investing the cash into fresh ventures. You can’t fault the theory. Insiders should know the prospects of their own business far better than outsiders. But the practice is controversial because buyback decisions are not always rational.
___STEADY_PAYWALL___

In this case, however, the logic is sound. The group’s major asset is its stake in Chinese internet giant Tencent, the market value of which far exceeds where the JSE-listed shares trade – Naspers has been at a discount of 50% to its effective stake in Tencent; Prosus at a 40% discount. Just over a year ago, the group banked $10.6bn by reducing its Tencent holding from 33.2% to 31.2%. It is now investing half that cash to take advantage of a hefty discount.

Also read: Alec Hogg: Tito’s real message – focus on your own circle of competence

It’s a smart capital allocation decision. And as the graph above shows, there’s much ground for Naspers and Prosus to make to recoup the underperformance of the past year – let alone the full discount. In September’s BizNews portfolio update webinar, we discussed the Naspers holding at some length, given concerns about US/China friction hurting TenCent’s share price. In the end we decided the Naspers discount was so large that now selling would be a mistake. Doing nothing can sometimes be a great call.

FOR DOWNLOADING…

* The recording of last week’s Finance Friday webinar is now available for you – Jackie Cameron and her guests Dawn Ridler and Mike Brown looked at how to diversity your portfolio without having to take money offshore. Fascinating insights. Here’s the link: https://www.youtube.com/watch?v=HPXwBT5_c9U&t=18s

* The latest edition of the increasingly popular BizNews Digest PDF, is now available for downloading. The format combines being able to click through to related video, audio and other articles, with easy-reading advantages of a more traditional layout. Here’s the link: https://bit.ly/2HMBDpl

* I’m also really proud of the weekly Inside Investing podcast, the latest episode featuring Sasol’s new CEO Fleetwood Grobler – in case you missed it, here’s the link: https://www.biznews.com/entrepreneur/2020/10/28/sasol-5

DOWNLOAD THE FREE BIZNEWS.COM APP
Click on the links below to download your own Biznews.com App:

Apple: https://apps.apple.com/za/app/biznews-com/id1517392839

Android: https://play.google.com/store/apps/details?id=com.goodbarber.biznews&hl=en