Naspers CEO Bob van Dijk says Naspers has proven that the company can turn businesses into large multi-billion-dollar operations and that it is the epitome of a 21st century e-commerce business as the JSE darling prepares to spread its wings to Europe. Naspers was looking for the best option to address the share price gap and knew it was frustrating for all its stakeholders. – Linda van Tilburg
By Thulasizwe Sithole
When you look at Naspers’ decision to invest in Chinese company, Tencent, it is regarded as one of the big winners in the investing hall of fame. The $32m investment in 2001 has grown to $133bn. It resembles the bet of $20m that the founder of Softbank, Masayoshi Son took in 2000 on Alibaba, the Chinese e-commerce giant. Alibaba is now worth close to $132bn and Softbank has become one of the “most powerful investors in the world.”
While Naspers is the largest company in Africa by market capitalisation, its valuation is just $100bn, which is “more than $30bn short of the value of its Tencent stake.” The reason for the valuation gap of $30bn is due to the “overwhelming dominance of its Chinese investment.” This gap has overshadowed other parts of the Naspers empire including Latin America’s food delivery apps, online payment groups in India, social networking outfits in Russia and Naspers’ venture to establish the equivalent of Amazon in South Africa. Tencent has been described by a former chairman of the group as “the big, winged stallion in Naspers’ stable. “
Naspers has also loomed large over the Johannesburg Stock Market in the last ten years, “propping it up as Jacob Zuma’s presidency trashed the economy and corruption scandals scared off foreign investors.” The Financial Times says the company has become too big for the JSE and is on the brink of a major corporate transformation as it is ready to list a separate company, Prosus on the Amsterdam bourse which would including 25% of its Tencent stake and its global internet assets. At its listing, it will become Europe’s largest consumer internet company, ahead of Spotify.
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Naspers Chief Executive Officer, Bob van Dijk, told the FT that they were surprised at the level of interest in the European listing and that the historical low profile of Naspers in Europe was going to change. “We’ve really been surprised at the interest.” Naspers is aiming at fixing the huge share price discount, which they believe is largely structural. “As it became an ever bigger part of the local market, South African investors had to offload its shares to keep portfolios diversified.“ Naspers is hoping that the company would attract institutional investors, who are starved of technology stocks in Europe. The company believes the Prosus listing will create a new market for Naspers shares and narrow the discount.
But Ken Rumph, a Jefferies analyst told the FT that he did not believe that concerns over the discount will be resolved with the Prosus listing. Rumph believes that the dominance of Naspers at the JSE resulted in South African investors selling “down Naspers as it dominated the JSE.” He says the reason why the rest of the world did not buy shares at 60-cents to the dollar was about influence, not size. The FT says there are concerns about the “elite class of super voting shareholders” at Naspers since its listing in 1994.” “These shares have 1,000 votes each – 100 times more powerful than the ones Mark Zuckerberg uses to control Facebook.“ It is an arrangement that Prosus will copy should Naspers’ stake fall below the half way mark. Rumph says this “anti-activist control structure” means that shareholders cannot curb Naspers if it makes bad investment decision. Naspers dismisses this saying the structure is intended against a hostile takeover and it delivers continuity and independence for operating and entering into new markets.
When Naspers doubled its money in 2004, there were investors who urged Naspers to get rid of the Tencent stake. Since then Naspers has made billions out of its investment and while some investors are not worried about the control issues as the Tencent investment proved to be so lucrative, others like Geneva-based investor Albert Saporta argues for a separation between Tencent and Prosus. “The Dutch company will be at a discount and is going to suffer from the same issues as the South African one”, he said. The FT says it is unlikely that Naspers will separate the Tencent stake as “there are sensitivities surrounding control of such a large stake.” The separation could also lead to a massive tax bill. The Chief Financial Officer of Naspers, Basil Sgourdos told the FT that they were looking to find the best option to address the share price gap and said he knew it was frustrating for all its stakeholders.
Naspers has spun off MultiChoice, resulting in the discount in its share price narrowing from 50% to 35%. Other efforts to change its image from a “moneybags investor” to an experienced operator was an investment of $500m in Letgo, a US mobile classified app, which is taking on Craigslist in the US. “Letgo is profitable and shows how Naspers’ classified businesses overall, which have 350 million monthly users, are now making money.” Naspers has also invested in TakeaLot – seen as the South African Amazon, before buying it out in 2017. TakeaLot’s delivery networks are often used to support Naspers’ Mr D, a food delivery app in South Africa. It has also invested in a fast-growing fintech business PayU – half of its volumes originate in India, “the leader of e-commerce payments.” PayU has grown by buying a Turkish equivalent, Iyzico for $165m and has entered the Singapore market by acquiring a major stake in Red Dot. The Financial Times says the presence of Naspers has become dominant in many parts of the world and includes online takeaways in Brazil, classified ads in Russia and it owns the leaders in these markets. They have invested in Facebook’s Libra cryptocurrency project and in Remitly; a total of $15bn in companies outside Tencent, although some have been sold. These other assets are now said to be worth $28bn.
Naspers sold its 12% stake in India’s Flipkart for $2.2bn when Walmart bought it. “The internal rate of return on Flikpkart, about 29% is similar to that enjoyed by private equity groups.” This van Dijk believes is proof that Naspers can turn businesses into large multi-billion-dollar operations and that it is “the epitome of a 21st century e-commerce business.”
There are many expectations in South Africa about Naspers and its contributions to the local market, especially since the other elements of South Africa’s old economy including its mining houses have disintegrated. It has committed itself to investments in South Africa, including the pledge of R4.6bn for e-commerce in South Africa that included an R30m investment on SweepSouth, an app service for domestic cleaners. The founder of SweepSouth Aisha Pandor who has been interviewed on Biznews says she believes Naspers could have invested in other schemes, but they chose to have a positive impact.
Naspers is part of South African history – from the apartheid years to the dawning of democracy in South Africa. If Prosus does find a better solution for the share price discount, “it will unlock tens of billions more value for Naspers’ investors at home.” For South Africans it is important that Naspers succeeds.
