After years of attempting a range of alternatives, Naspers/Prosus has found the key to unlocking the massive discount at which it shares trade. At a telecon yesterday, CEO Bob van Dijk unpacked a fresh strategy that unlocks the group’s previously frozen asset, its 31% holding in Chinese group TenCent. The market celebrated the news, pushing Naspers and Prosus shares up 15%.
Naspers CEO Bob van Djik on the Naspers share price jump
When I look at the very strong operational performance and I compare that to where markets are trading, there is really a very significant disconnect. But at the same time, there is actually a big opportunity to unlock value for shareholders and to address that disconnect. This morning we have announced the start of an open-ended share repurchase programme approach to Naspers shares.
The programme is designed to increase net asset value per share so it takes advantage of those processes and Naspers trading discounts to the underlying net asset value. And this is possible as we’ll be selling Tencent shares at market price and repurchasing properties and Naspers shares which trade on a large discount to the true value of Tencent. Just to give an example, right, based on current prices and discount, the $10bn buyback programme would enhance the net asset value per share approaches by 9%. If we run this buyback at 20 or 30 billion, this would deliver enhancements of around 20 and 40% respectively.
On his discussions with Tencent and what level of discount he would be comfortable with
The first question, I think the reality that we are facing, is a really extraordinary one. Right. Operational performance for the group is exceptionally, exceptionally strong. And we see that. We see that we have core businesses that are profitable and increasing profitability. And that’s the case in payments and shares in food and classifieds. And we’re also seeing strong growth in adjacencies. And at the same time, we see very weak stock price performance. Right. We can be explicit about that. And that creates a look at it. It’s an issue, but it’s also an opportunity. And I think what the programme does, and the reason Tencent is supportive of withdrawing the lock-up, is it actually makes use of that inefficiency and at the same time our exposure per share is frozen for us, per share to Tencent actually increases because of this.
It is an opportunity created by markets, a market imperfection that we’re going to make use of at scale and that doesn’t reduce our shareholders’ exposure to Tencent. So I think it’s a big bazooka idea to address market inefficiency, but it also retains our exposure to one of the best companies in the world per share. To the second question, look, the way we see it, we will continue to do this as long as the discount is at our level. And now it’s most certainly at a very elevated level.
On what elevated levels mean
We are certainly at a level where we are at an exceptionally elevated and exceptionally elevated discount and we will make use of that.
On a $3.7bn sale of its stake in JD.com. And share prices of potential takeover targets having dropped sharply
I think market pricing is at a level that I think the discrepancy, if I look at our portfolio between operational performance and market appreciation, is very large. It’s a very unusual time in history. I think what we like is that we have exposure to models we think are really good and we feel good about our food portfolio. We feel great about our classifieds portfolio. It’s about attack. We do look at opportunities. But I think the best opportunities are, frankly, in our own business. Right. So we have invested, you’ve seen it in the results, in accelerating our own businesses, and I think that’s been a good investment that will pay off over time. Now, with the repurchase programme, we’re effectively investing in our own stock, which I also think is an excellent investment when it comes to external investments. Look, I think asset prices have gone down, the cost of capital has gone up. So I think we want to be very mindful. We set a high bar for anything new that we would get into. Given the reality we’re facing.
On the continued investment in Edtech and food delivery and missing out on Just eat
If I look at the results of Just Eat, though, I don’t think we missed out. I think we managed to stay disciplined and not surprised. That now turned out to be a vast overpayment. So I feel really good about that outcome in particular, other opportunities out there in the market. I would say potentially. But they, and obviously we, look quite carefully at what is out there. I think the flip side of it is that the cost of capital is up. I think we are really confident about our own assets, right? If I look at the performance of IFood in Brazil, it gives me a lot of reasons to smile. If I look at Swiggy, a lot of good news, delivery hero’s core business is also doing exceptionally well there. There are other assets that are underpriced that are underpriced for a reason. So we’re going to be very disciplined and sensible about it. But if we see the right thing at the right place, we might, we might make a move, but the bar is high.
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