Naspers is expected to push through a proposal to simplify its business with shareholders.
But even then, some investors still think an unbundling of the group’s stake in Tencent would be the best way to cut its discount to that asset and unlock value for shareholders.
In recent years, the group headed by CEO Bob van Dijk has tried a number of complex financial manoeuvres to address investor concern, the main one being a wide gap between the its market capitalisation and the value of its underlying assets, driven by Chinese internet giant Tencent.
In June 2022, the group initiated an open-ended share repurchase plan meant to help with this mission. To make this happen, Prosus went back on its word not to sell more of Tencent’s stock for three years in June, saying it needed the money to fund the buyback.
The size of the open-ended, long-term programme has not been disclosed.
Goldman Sachs estimates that Naspers and Prosus were at 52% and 43% discount to NAVs before Tuesday’s restructuring announcement. During a media briefing on Tuesday, Naspers CFO Basil Sgourdos said the discount stood at below a combined 40%.
“The discount has come down. Prior to the buyback, our discount was about 60% combined. Now we’re in the high 30s.”
In the light of this, two camps of investors currently exist. Those seeing positive movement in how management is executing its plan and those wary of “yet another group restructuring proposal”.
Peter Takaendesa, head of equities at Mergence Investment Managers says simplification of the corporate structures together with achieving profitability in e-commerce assets are likely to be key drivers “of sustainably closing the large discounts that both Naspers and Prosus shares trade at compared to their net asset values”.
“Shareholders’ approval of the transaction shouldn’t be a major issue especially at Prosus where a simple majority is required,” he said. It helps that the group has a class of super voting shares that have tended to help it to pass such resolutions.
On the other side of the some investors are less enthusiastic about the prospect.
“The latest brainwave will involve paying more fees to bankers, advisers and consultants,” said Michael Treherne, a portfolio manager at Vestact Asset Management.
“In my view, the cheapest and simplest way to reduce Naspers’s NAV would be to sell the bulk of the Tencent holding, or to spin Tencent out directly to current Naspers shareholders.”
“That option is unattractive to Bob van Dijk and Basil Sgourdos, CEO and CFO, because it will mean a much slimmed down group, and significantly smaller pay packages. At least the group is selling their Tencent stake, albeit slowly,” he said.
This comes as the group continues to push for profitability of its $30bn e-commerce portfolio by the first half of 2025.
Revenue for the full year to end-March 2023 grew 7.7% to $6.8bn (R125.9bn) excluding M&As, with food delivery and payments and fintech being the biggest contributors. Its operating loss widened 40.5% to $1.4bn (R25.7bn).
In food delivery, iFood, Delivery Hero and Swiggy saw strong growth and profitability during the period. iFood's core restaurant businesses reported a 14% increase in gross merchandise value (GMV) and a 24% increase in revenue. Delivery Hero's GMV grew 18% and Swiggy's by 58%.
GMV refers to the value of goods sold via customer-to-customer or e-commerce platforms.
The group is on a mission to prove the value of its portfolio beyond its investment in Tencent. This, in combination with a suite of other transactions, major acquisitions, and the largest share buyback in JSE history is hoped to close the gap over time.
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