South African investors are still Naspers bulls because of the company’s exposure to Tencent, which is set to benefit from China’s reopening, and its share buyback programme.
Founded in 1915 as an Afrikaans newspaper publisher, Naspers embraced the internet revolution in the 1990s and 2000s to become Africa’s most valuable company.
It has interests in online retail, publishing and venture capital investment.
The company has maintained its presence in local news, owning Africa’s largest publisher of magazines and newspapers – Media24. Naspers also owns Takealot, South Africa’s largest online retailer.
Most notably, Naspers invested $32 million in Tencent in 2001, when it was an obscure Chinese tech startup. This investment is now worth over $100 billion.
Tencent has since been placed under Naspers’ international investment unit, Prosus, to reduce the discount it trades at relative to the value of the investment.
As part of a share swap deal in 2021, Prosus acquired a 49% stake in its parent company Naspers while Naspers remained the majority shareholder in Prosus.
Naspers and Prosus started a share buyback programme in mid-2022 to reduce their trading discount. Prosus is selling off small pieces of its holding in Tencent to fund this programme.
So far, it has sold over 193 million shares on the open market worth roughly $7.2 billion. This has reduced Prosus’ stake in Tencent from 29% to 26.9%.
The sell-off remains open-ended, with Prosus placing another 96 million shares into the Hong Kong exchange’s clearing system.
China’s reopening and buybacks
Patrice Rassou from Ashburton Investments chose Naspers as his stock pick on Business Day TV, saying the company offered good value at its current price.
Investing in Naspers effectively plays on Chinese technology, given its large holding in Tencent through Prosus.
He pointed to the re-opening of China’s economy as a boost for Tencent’s earnings with increased use of its payment systems.
Closer to home, Naspers has fallen out of favour with investors over the last few years. Its share price has remained relatively flat over five years.
It offers good value after the company’s efforts to narrow the discount it trades to its Tencent stake, particularly its consistent share buyback programme.
According to Bloomberg Intelligence, its continued sell-off of Tencent shares will result in a more simplified business and a reduced discount which may even be completely eradicated.
Bright Khumalo, a portfolio manager at Vestact Asset Management, also recently selected Naspers as a good investment opportunity on a webinar with the JSE.
Investing in Naspers is a play on Tencent, according to Khumalo.
Tencent has lagged behind other technology companies in share price performance, making it cheap relative to its peers with an attractive valuation.
The company’s turnaround plan is also on track following recent approvals by regulators for its new online games and reduced scrutiny from the government.
The Chinese tech giant also announced plans to launch a ChatGPT-style AI chatbot across its services in the near future.
Khumalo also pointed to Naspers’ share buyback programme as beneficial for investors as it would provide a short-term boost to the share price while reducing the discount to Tencent.
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