Our opinion on the current state of NASPERS-N(NPN)Naspers (NPN) is Africa's largest company and an international giant in social media, gaming, and IT. Its primary asset is a 73% stake in Prosus (PRX), which owns 26% of Tencent, a Hong Kong-listed company providing social media services and gaming in China. Tencent dominates the Chinese market with 10 of the top 20 mobile applications, reaching over 1.1 billion users.
Key Developments and Structure:
1. Capital Structure: Naspers' archaic dual-share structure gives significant control to the 907,128 unlisted "A" ordinary shares, each carrying 1,000 times the voting power of the 438.3 million listed "N" shares. This structure remains a major concern for institutional investors, contributing to the discount in the share price relative to its intrinsic value.
2. Key Investments: Aside from Tencent, Naspers has interests in e-commerce and operates in 120 countries. Key investments include:
- Letgo: Acquired an additional $500 million stake, cementing its presence in the American classifieds market.
- South African Operations: Retained Takealot, Mr. D Food, PayU, and Autotrader.
3. Listing of Prosus: In 2019, Naspers listed Prosus on Euronext in Amsterdam to house its international assets. This move reduced Naspers' rand exposure and established Prosus as Europe's largest consumer internet company.
4. Growth Drivers: Tencent continues to be the main revenue driver, especially during the pandemic when online gaming surged. Naspers has also seen growth in its e-commerce businesses.
Financial Performance:
- For the year ending 31st March 2024, Naspers reported:
- Revenue up 8%.
- Core headline earnings up 88% to $2.1 billion, driven by improved e-commerce profitability and Tencent's performance.
- Headline earnings from continuing operations increased by $1.2 billion to $1.4 billion.
- Debt Position:
- Net debt: $737 million.
- Cash and equivalents: $14.6 billion.
- Interest-bearing debt: $15.4 billion.
- Undrawn revolving credit facility: $2.6 billion.
- Trading Update:
- For the six months to 30th September 2024, Naspers estimated HEPS to increase by 125%-132% due to improved profitability and lower impairment charges.
Technical Analysis:
- Since October 2022, Naspers' share price has staged a recovery. Between March 2023 and April 2024, it moved sideways but then broke to new highs.
- It has surpassed its all-time high of R4090 reached on 21st November 2017, signaling strong upward momentum.
Outlook:
- Naspers is under-priced at current levels, considering its robust growth, strong financial position, and dominance in key markets like Tencent. However, its dual-share structure and exposure to regulatory risks in China remain points of concern.
- The company's diversification through Prosus and consistent growth in e-commerce offer long-term upside potential.
