Naspers, SA’s biggest banks and insurance firms dominate the domestic portfolio of the country’s largest asset manager, Ninety One, data from the money manager shows.
Naspers, one of the largest technology investors, constitutes about 10.3% of Ninety One’s SA holdings, with FirstRand, Capitec, Standard Bank, Nedbank, Sanlam, Discovery, Anglo American, AngloGold Ashanti and Mr Price wrapping up the top 10 domestic holdings.
“We really love SA banks. The banks we believe can still deliver low double-digit earnings plus mid-to-upper single-digit dividend yield out of them. We think the loan growth of the banks will start to improve on the corporate side and then we expect a consumer kicker later on,” Rehana Khan, portfolio manager at Ninety One, said at a webinar held by the company on Tuesday.
The asset manager has put Capitec in the growth basket of its portfolio, alongside Amazon, Naspers and Microsoft.
Capitec, which has 23-million clients, constitutes 7.4% of Ninety One’s SA equity fund.
“We initiated a position in Capitec in late 2023 because our analyst Chris Stewart pointed out that the market expectations were underestimating some of the growth factors in the business,” Khan said.
When looking at the SA retail and business banking revenue pool over the past 14 years, Capitec’s market share increased from about 3% to about 14%.
From having about 250 branches and few ATMs in 2005, Capitec has grown to nearly 900 branches, with the highest number of ATMs across SA, at almost 9,000.
Khan backed Capitec’s business banking proposition to make serious inroads in the highly competitive market, which has also attracted the attention of the likes of Investec.
Capitec, the country’s biggest retail bank by customer size in 2019, bought Mercantile Bank from the Portuguese state-owned banking group Caixa Geral de Depósitos, in a deal worth R3.5bn.
It has since renamed the business to Capitec Business, as it ramps up its strategy to win market share in the business banking sector, which is dominated by FNB.
Ninety One, which has about R3-trillion in assets under management, is attracted to Naspers’ exposure to Chinese tech giant Tencent — in which Naspers holds almost 25% of — valued at about $100bn — via Amsterdam-listed Prosus.
“Tencent’s gaming business has started to pick up and have a really good pipeline of games we believe they can launch within China and the global markets. This will further enhance the earnings trajectory of Tencent,” Khan said.
“Naspers and Prosus, with Tencent being the biggest asset there, have got massive net asset value discounts. While we don’t believe those discounts are going to close in the next 12 months, we do have a new CEO [Fabricio Bloisi] in place who is saying and doing the right things. If he continues on that journey, we believe those discounts can start to narrow over the medium term.”
The Naspers stable launched the buyback programme in 2022 after winding down an unpopular cross-shareholding structure with Prosus.
The structure was set up in 2021 via a share swap deal under which Prosus issued shares to buy just more than 45% of Naspers, effectively moving part of Naspers from Johannesburg to Euronext in Amsterdam. The unpopular, convoluted deal was aimed at shrinking the discount between the value of the two companies and their stake in Chinese moneymaker Tencent.
But the structure did not reduce the discount, forcing the company to launch an open-ended share repurchase programme.
Ninety One’s offshore portfolio is dominated by tech companies, with Amazon, Nvidia — known for its advancements in graphics processing units — Microsoft and Alphabet dominating the book.
“Amazon is not a stock we owned over the course of 2022. We initiated a position in June 2023 when one of our analysts pointed out that the earnings downgrades for Amazon had gone too far and the market was underestimating the margins sitting in the retail business,” Khan said.
“We had enough conviction in terms of the earnings and the fundamentals to come through for Amazon to initiate a very large position and we have seen the earnings upgrades subsequently starting to come through and the share price following suit.
“The key point here is that had Amazon not delivered increase in earnings expectations, the share price would have struggled.”
With Mudiwa Gavaza
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