PREMIUM: A rational perspective on Naspers interims, future and the Multichoice furore

We've all heard of the missionary never being recognised by his own people. That's something the team at Naspers is relating to right now..A multinational with 82% of its $18bn annual revenues generated outside its South African home base, Naspers's sparkling interim results received little attention. Instead, all the interest involves a furore around its satellite television subsidiary Multichoice..That's a pity. Naspers accounts for around one fifth of the JSE's all share index and as a consequence its performance is critical to millions of South African retirees. So a 65% surge in core headline earnings for the half year to end September passed almost unnoticed as did the fact that the group's balance sheet is virtually ungeared. The details of the performance, from Naspers's investor relations office, is carried at the bottom of the page. it makes for pleasant reading for shareholders..___STEADY_PAYWALL___.Also of interest to those who own the shares directly (or through our Biznews SA Champions bundle on Easy Equities) is the efforts being made to narrow a 26% discount at which the Naspers shares trade relative to the value of its Tencent investment alone. In effect, what the market is saying is that not only are all the other Naspers assets worthless, but you get a $43bn discount when buying Naspers's stake in Tencent..That's an aberration South African investors should take advantage of – as we have done by allocating a hefty 31% of the Biznews SA Champions portfolio to Naspers shares. Apart from the excellent prospects for its dominant asset Tencent, the other new economy segments of the empire are performing well as the Bloomberg piece below illustrates..Like all such anomalies, the huge discount at which Naspers trades to its underlying assets won't last. It is surely only a matter of time before the company lists its stock on a major global exchange. You can only trade Naspers shares in any volume on the JSE. That technicality, favouring Rand-based investors, won't continue indefinitely..So what about the Multichoice furore?.As always, one needs to see it in context. Back in 2012, Multichoice agreed to a five-year deal with the crony capitalist Gupta family – although back then president Jacob Zuma's state capturing friends hadn't yet been publicly exposed for what they really are..The satellite TV distribution channel was promised a top quality product that would compete with the highly successful eNCA news channel. The Guptas, novices in television, presented Multichoice with a proposal that was essentially a partnership with Zee TV, the flagship channel of the Indian media group of the same name whose stock is capitalised at US$8.5bn. Multichoice agreed to contribute a slice towards the new channel's running costs (around a third of what it gives eNCA)..As has happened on numerous other occasions, what was promised by the Guptas was very different to what they delivered. Zee TV's influence was nowhere to be seen when the Gupta channel, ANN7, came on air. Multichoice was stuck. The Gupta influence within the ruling ANC is well documented. Were Multichoice to pull the plug, not only could it expect marches from Gupta supporters like the ANC Youth and Women's League, but its SA licence could very well have also been at risk..As it happened, Multichoice chose to honour its contract, pay the Guptas what was promised and see out the five years. that ends early next year. But until that such is the outpouring of anger against the crony capitalists that Naspers can expect a sustained barrage – including from within the group's own journalistic ranks. Shareholders needn't worry too much. In the context of the $120bn group, this is like a tick on the back of a buffalo. Irritating but hardly material. – Alec Hogg.Naspers looks to dominate global food delivery sector to improve rating.By Loni Prinsloo and Janice Kew.(Bloomberg) – Naspers Ltd. is planning to invest more in businesses including food delivery to help narrow the valuation gap between Africa's biggest company and its stake in Chinese internet giant Tencent Holdings Ltd..The 33 percent shareholding in the Shenzhen-based company is worth about $166 billion, while Naspers itself is valued at $123 billion. There's no reason for a discount at this "unusually high level," Chief Financial Officer Basil Sgourdos said in a phone interview on Wednesday.."We are working hard to scale our other businesses to reverse this," the CFO said. "We have strikingly accelerated our growth, profitability and scale, especially in our e-commerce businesses."Naspers sees food delivery as a particularly good opportunity, and is seeking more deals in the industry after the 660 million-euro ($781 million) purchase of shares in Germany's Delivery Hero AG in September, Sgourdos said. That business sits alongside iFood in Brazil, Swiggy of India and Mr Delivery in South Africa in the company's portfolio. Other e-commerce investments include online travel agents in India and education software providers in the U.S.'Fantastic Returns'"We have seen some fantastic returns when it comes to our investments in food businesses," the CFO said. "Recently we have invested substantially in food delivery. We really do like the segment and we believe there is a fundamental growth opportunity."The CFO was speaking after Naspers reported a 65 percent increase in first-half adjusted net income to $3.50 per share. That compared with 31 percent growth the previous year, and was about in the middle of a range forecast by the Cape Town-based company on Nov. 17. Tencent earlier this month posted third-quarter net income that beat estimates.Naspers shares rose 1.5 percent to R3,834.97 at the close in Johannesburg, extending the year's gains to 91 percent. It's the year's best performer on the FTSE/JSE Africa Top40 Index. The company should buy back its own shares to take advantage of the discount to Tencent, veteran emerging markets investor Mark Mobius said last month.Naspers is also Africa's largest pay-TV provider, and increased subscriber numbers by 11 percent to 12.2 million in the six-month period.Strong interim results driven by ecommerce and Tencent From Naspers:Naspers today announced its financial results for the six months to 30 September 2017. Revenues, measured on an economic-interest basis (including the proportionate contribution from associates and joint ventures), increased 33% year on year to US$9.0bn (or 39% if acquisitions, disposals and currency movements are excluded). Businesses outside South Africa contributed 82% of revenues, up from 80% a year ago.Core headline earnings grew 65% to US$1.5bn. An encouraging development is the reduction in development spend year on year, on both a consolidated and an economic-interest basis. "We delivered a strong performance for the first six months of the financial year," said Naspers chair Koos Bekker. "Ecommerce accelerated its topline growth, whilst Tencent produced another excellent set of results. Video entertainment performed solidly in South Africa and managed to stabilise losses in sub-Saharan Africa, despite the continued need to navigate weak macroeconomic conditions."Naspers reports in United States dollars (US$), with the financial performances of the businesses consolidated in their functional currencies and translated into US$. Where pertinent, performance in local currencies, adjusted for acquisitions and disposals, is quoted in brackets after the equivalent International Financial Reporting Standards metrics.Revenues in the internet segment, which now accounts for 77% of group revenues, were up 42% (52%) to US$6.9bn. Trading profits increased 47% (61%), boosted by Tencent and declining losses in several ecommerce units. "Ecommerce growth was fuelled by strong performances across all segments as they continue to scale. Classifieds gained further traction across the portfolio and, excluding the additional investment in letgo, the business turned profitable during the reporting period," said CEO Bob van Dijk. "Over the past six months we also strengthened our presence in online food delivery with significant investments in Delivery Hero, plus Swiggy in India."The video-entertainment business recorded only modest subscriber growth, closing the period at 12.2 million households. The segment reported revenues of US$1.8bn, up 8% (7%) on the prior year, and a 4% (3%) increase in trading profit to US$234m. The South African DStv business continued to deliver healthy profits and cashflows, despite a weakening economic backdrop, and is seeing good early traction from combining its Showmax offering with DStv Now. In sub-Saharan Africa, the business continues to face macroeconomic challenges and weak currencies, but assuming no further substantial currency weakness, as well as continued momentum in subscriber growth and ongoing cost controls, the group will be on track to return to profitability in the coming years..Media24 achieved satisfactory results, with the structural decline in traditional revenue streams offset by significant cost-reductions throughout the business. The growth businesses, notably ecommerce and digital media initiatives, reported strong growth and now represent 8% of total revenue. The segment's focus on audience migration to digital formats remains.Equity-accounted investments contributed US$1.7bn to core headline earnings, an improvement of 52% year on year. Consolidated free cash outflow of US$96m was recorded. The balance sheet remains healthy, with net debt of US$140m reflecting gearing of only 1%."The group will continue to drive scale to bring its ecommerce business to profitability and cash generation," said CFO Basil Sgourdos. "We will manage macro challenges in the more mature businesses through tight cost controls and will continue to innovate and reposition our businesses to counter increasing competition by global players. We will also continue to invest in opportunities that may power future growth," he added.

PREMIUM: A rational perspective on Naspers interims, future and the Multichoice furore

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