My China go-to guy: Tencent (hence Naspers) problems “transient”

By Alec Hogg

SA investors pay lots of attention to Tencent, China’s internet giant in which Naspers owns 31%. Rightly so. Naspers’s 2.9bn Tencent shares are worth R1,700bn; the Cape company’s entire business is valued at R1,330bn. So Naspers shares trade at a 22% discount to its Tencent stake alone – with everything else thrown in for free.

But the scale of that investment means where Tencent’s share price goes, Naspers follows. And as Naspers accounts for 19% of the JSE All Share Index, what happens to its share price has a big impact on what SA investors call “the market”. Not surprisingly, many analysts fret about this over-exposure of a nation’s savings.

Tencent is also one of the biggest holdings in the Cederberg Capital portfolio run by London-based Stellenbosch graduate Dawid Krige, my go-to guy on all things China. Krige invests only in China and visits there often. He’s really good at picking winners. The Cederberg fund’s performance puts it into the 99th percentile (ie the top 1%).

In his latest letter to investors, Krige says after meeting Tencent management last week he believes well publicised issues which have hurt the share price “should prove to be transient”. He calculates Tencent stock on a forward profit multiple of 20 times – good value for a business growing at 40% a year. So no need to panic. Yet.