NPN - Naspers Limited (JSE)

[vox]

Naspers is a South African company founded in 1915 as a newspaper company. Today, the multimedia conglomerate is the largest company on the continent by market value with a market cap of $49,504 million.

 

The company operates 3 divisions, internet, pay-tv, and print media.

 

The internet division includes ownership in 3 publicly traded companies:

- 33.7% ownership of Tencent Holding (700-HK) which has a market cap of $142,624 million

- 29.1% ownership of Mail.Ru Group Ltd (61HE-LN) which has a market cap of $7,326 million

- 35.6% ownership in Beijing Media Corporation Limited (1000-HK) which has a market cap of $117 million.

In total, the value of the publicly traded holdings is $50,277 million.

 

The pay-tv business services approximately 8 million households with a 90%+ market share in South Africa and 30% EBITDA margins. The business is growing 18% annually as they are expanding aggressively in Sub-Saharan Africa. Currently, LTM EBITDA is $965 million. With a 10x EV/EBITDA multiple, I think this business is worth approximately $9,650 million.

 

The print media segment has flat revenues and declining margins. LTM EBITDA was $100 million. With a 8x EV/EBITDA multiple, the business would be worth $800 million.

 

Adding together these components and taking out net debt of $1,522 million results in a value of $59,205.

 

The crown jewel of the company, however, may be the portfolio of 120+ internet business in emerging markets. The company has historically been secretive of its holdings, its ownership in Tencent was not disclosed until Tencent went public in 2004 (Naspers purchased its stake for $32.5 million in 2001 meaning the compounded annual return on their investment was approximately 75% over 13 years). Some of the current internet holdings include: Allegro, Avito, Buscape Company, Dubizzle, Fixeads, Flipkart, ibiboGroup, kalahari.com, Korbitec, Movile, OLX, PriceCheck, ricardo Group, Sanook!, Sulit, and TravelBoutique Online. I view this as a portfolio of options with a minimum value based on their reported M&A values of $5,000 million.

 

Management is shareholder friendly. One key figure is Koos Bekker, who was the CEO but stepped down in April 2014 after 17 years. He plans on spending a year traveling and researching opportunities before taking over as Chairman of the Board in April 2015. 

 

The best trade may be an arbitrage of long NPN and short Tencent and Mail.Ru allowing you to get the pay-tv, print media, and internet incubator companies for free.

[fareastwarriors]

Thanks for posting. I been loosely following for a year or 2. They have some great assets.

[peter1234]

They were also a runner up in Ackman's Pershing competition. Write-up and video are on the web.

 

http://www8.gsb.columbia.edu/valueinvesting/sites/valueinvesting/files/Graham%20%26%20Doddsville%20-%20Issue%2021%20-%20Spring%202014.pdf

[vox]

The questions (paraphrased) from the professional investors at the Pershing Square Challenge were:

 

How do you have any idea what the collection of internet assets is worth, what was the valuation methodology?

 

What's to prevent the value differential from going more deeply negative based on the buyers and sellers of a pure play internet company and a South African media conglomerate?

 

The stub value has been a reasonable percentage of the market cap of the company for 10 years before falling off a cliff, why?

 

Some people have suggested Jack Ma of Alibaba misappropriated Alipay and took it off to the side without consequences from the Chinese government, do you think a similar risk might be possible here?

 

Has Koos ever discussed selling some of these stakes and returning cash?

 

Can you discuss other complicated holding companies that don't have a hold co discount or why this one should not if there are no others?

 

What percent of the pay-tv business is not in South Africa? A large majority of these assets are held in countries with geopolitical risk, how can there not be a hold co discount when you have assets that are inherently unstable?

 

How much liquidity is there in the stock?

 

To me, none of these concerns pose a fatal risk to the investment thesis.

[yadayada]

Aren't there better bargains in that part of hte market. If you go that way, might as well pick the best and cheapest.

[jouni1]

Aren't there better bargains in that part of hte market. If you go that way, might as well pick the best and cheapest.

which part of the market? what is the best and cheapest african stock(if thats what you meant)? after going to south africa, i feel like it might be a good place for a small investment.

[vox]

yadayada, if you execute the pair trade, you can fully hedge out the economic interest of the downside. If the market appropriately rates the assets it would return a high percent on net capital and have a very high alpha.

[tede02]

There appears to be a very attractive arbitrage opportunity here with Tencent.  See:

 

http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/fpa-crescent-fund-commentary-2017-q2.pdf?sfvrsn=2

 

or

 

http://www.reuters.com/article/us-naspers-tencent-holdings-ceo-idUSKBN19H1S7

 

How does this trade (I hate using that word) go south?

[Jurgis]

How good is Naspers itself? Is it one trick pony with Tencent investment ages ago? Assuming I did not want to do a pair trade and would be fine owning Tencent at negative spread, is the remainder of Naspers attractive? (I guess I could ask the same question even if I did pair trade).

 

 

[tede02]

It appears the odds of Naspers (not counting the Tencent holding) being worth something are high.  There is a summary of the business, its components and even a detailed breakdown of the trade here:

 

http://www.fpafunds.com/docs/special-commentaries/cfa-society-of-chicago-june-2015-final1.pdf?sfvrsn=2

[vox]

I think Naspers has done well in the venture capital business, but it has been a very favorable environment. Flipkart has been their most high profile success outside of Tencent, the valuation is 3.1x their cost basis from investments made in 2012, 2013, and 2014.

 

TechCrunch does a decent job of tracking their major activity: https://techcrunch.com/search/naspers#stq=naspers&stp=1

[Jurgis]

I think Naspers has done well in the venture capital business, but it has been a very favorable environment. Flipkart has been their most high profile success outside of Tencent, the valuation is 3.1x their cost basis from investments made in 2012, 2013, and 2014.

 

TechCrunch does a decent job of tracking their major activity: https://techcrunch.com/search/naspers#stq=naspers&stp=1

 

Thanks.

 

On very high level this seems like mini-SoftBank with Tencent instead of BABA and fewer wholly/majority owned big businesses like Sprint/ARM.

 

Similar to recent Softbank emerging market ecommerce investments, the risk is that they pay hiked up valuations and won't have good returns in the future. Like you say, past results might be due to favorable environment and we don't really know what the future will bring.

 

And similar to Softbank, if one does not hedge out Tencent (BABA), one is buying highly valued Tencent (BABA).

 

I think I got the general picture.

[bjakes00]

I haven't done the work lately but a longstanding thesis on the company is that you get the market value of Tencent at a discount plus a ton of additional companies for free. The business seems to be looking to unlock the value of the additional companies now with them announcing they will spin off the Africa-wide entertainment business (Multichoice) to shareholders:

https://www.multichoice.co.za/wp-content/uploads/2018/09/Naspers-lists-MultiChoice-Group-on-JSE.pdf

https://www.cnbcafrica.com/videos/2018/09/18/naspers-ceo-bob-van-dijk-on-decision-to-unbundle-multichoice/

 

Would be good to hear if there are any views on the board on the latest movements? Also depends on your views of Tencent...

[DooDiligence]

A recent presser regarding the FlipKart proceeds says,

 

"The proceeds will be used to reinforce Naspers’ balance sheet and will be invested over time to accelerate the growth of Naspers’ classifieds, online food delivery and fintech businesses globally, and to pursue other exciting growth opportunities when they arise."

 

https://www.naspers.com/news/naspers-sells-stake-in-flipkart

 

Is there a buyback in the works or should the above quote be taken at face value?

 

Lakesider?  :)

[MrB]

Olx India almost doubles revenue and profit in FY18 riding on autos and smartphones

 

https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/olx-india-almost-doubles-revenue-and-profit-in-fy18-riding-on-autos-and-smartphones/articleshow/66349464.cms

[khturbo]

Does anyone know exactly how many Tencent shares they own? I must be dense because I went through their filings and couldn't find an exact number.

 

Using 31.2% of Tencent, which I did find, I believe the market cap of Naspers is below it's Tencent holding. I also thought I read that there aren't any tax consequences for selling?

 

I posted on the Tencent thread, but I just can't really understand why they wouldn't sell some Tencent and use it to buy back stock. They'd own more Tencent per share and also obviously more of the other stuff. I'm wondering if my math is kind of off somewhere.

[Lakesider]

Does anyone know exactly how many Tencent shares they own? I must be dense because I went through their filings and couldn't find an exact number.

 

 

2,961,223,600. So the value is roughly 100B USD vs Naspers whole market cap which is around 80B.

 

There was a lot of pressure last year for the company to buyback stock when Tencent was at its highs and the Naspers discount was at its widest. Management were adamant that buybacks were off the table insisting there would be a higher rate of return investing in outside opportunities. The Idea that Naspers can invest at a better rate externally than buybacks at 40% discount comes across to me as a bit of a paradox. They would be buying their own investments at a discount too!

 

Anyway, Unfortunately I don't think that they will be buying back shares anytime soon. They may change their mind over time. Management was also sure about stopping dividend payments because they didn't make sense last year. However a bit of pressure from some influential investors in South Africa and BAM, its back this year. Instead they are ploughing cash into the food delivery investments, particularly India.

 

To me this poor decision making wasn't enough to put me off the investment, they have a pretty decent IRR even when you factor out Tencent. investors . I think the discount was large enough to overlook this. Ontop of that I think the negative value given to all the other business outside of Tencent is wrong. The food delivery company has value, the listings company has value. Fintec, I Dont know, but I suspect the growing transaction numbers give it value to competitors. I think that you are getting great value per share, for the discount to be justified the rest of the company would have to lose billions. If you could would you buy 100% of the company? I know the duel class shares abusive but the operators have demonstrated some great skill to get to where they are.

 

Management is spinning off the legacy african media company early next year to force the market to give it value.  I have my fingers crossed that this will lead to a move out of Africa to list on a larger market. Management have been partly blaming the JSE a large part of the discount. The futher they get from south africa the smaller the discount will be.

 

You have to like Tencent for the long term which I do. The gaming sector has been rough but the moat is there, their user numbers are incredible. Long term I highly suspect they will recover from recent issues. When earnings recover at Tencent you benefit more per share by owning thorough Naspers. 

 

 

 

 

 

 

[plato1976]

My concern is mainly the political risk related to South Africa

[bjakes00]

My concern is mainly the political risk related to South Africa

 

Why is that a concern in this case? I understand for hard assets there are nationalisation concerns etc. but can you elaborate why you would be worried here?

[MrB]

My concern is mainly the political risk related to South Africa

 

Why is that a concern in this case? I understand for hard assets there are nationalisation concerns etc. but can you elaborate why you would be worried here?

With the way things are going in SA I don't see something along the lines of what happened to MTN in Nigeria as farfetched. At the end of the day it will be some excuse for a land grab e.g. tax penalty of some sort.

[Spekulatius]

My concern is mainly the political risk related to South Africa

 

I think Chinese government poses much bigger political risk to Tencent and Naspers than SA.

 

I would happily pay 20% more for Tencent, BABAetc  if I‘d be sure I could trust their accounting.

[Guest ajc]

 

TL, DR: I don't think there's that much to be concerned about for anyone looking to invest in South Africa over the next decade. In fact, I think there's noticeably more potential for upside instead of downside.

 

No comment on Naspers specifically, but I'm from SA and live in Cape Town.

 

I think any investor fear for South Africa is substantially overblown. Reason is, Ramaphosa is essentially as much of a sharp, progressive, free market president as the country could've hoped for.

He was actually Nelson Mandela's choice as successor, but the ANC elected Thabo Mbeki instead. Ramaphosa then left his day-to-day role in the ANC and went into the corporate sector.

While in the private sector, he took advantage of the black economic empowerment (BEE) laws that made it easier for non-white South African business people to get loans, take part in joint ventures, etc, in order to participate more easily in the South African economy.

 

Basically, BEE was South Africa's main economic approach to affirmative action after apartheid had left 95% of the country's assets in the hands of 10% of the population.

Anyway, while numerous individuals did use BEE as a license to line their own pockets shamelessly and illegally (such as South Africa's previous president, Jacob Zuma), Ramaphosa actually played by the rules and ended up on South Africa's billionaire list.

 

Before becoming president though, and unlike some world leaders, Ramaphosa sold off his stake in Shanduka Group (which he founded) to avoid any conflict of interest.

Shanduka has large holdings in Standard Bank, MTN, and has a joint venture with Glencore. Earlier in his career as a businessman, he also held a large stake in McDonalds South Africa (the global burger chain).

On top of that, his wife is the sister of South Africa's richest person, Patrice Motsepe. Motsepe is a mining magnate, who like Ramaphosa, took advantage of the BEE laws but always stayed in bounds.

 

It's pretty unlikely then, given his historical approach to business and the economy, that Ramaphosa would suddenly screw over the major company he founded as well as his extended family, by messing noticeably with the rights of corporate South Africa as well as foreign firms.

 

A few more points on Ramaphosa:

 

- during his early ANC days, he was actually a founder of NUMSA (South Africa's largest workers union). As a result, even though he later went into the corporate sector, he has a lot of sway and experience in dealing with labor negotiations. That'll be needed in SA over the next decade since land redistribution is a primary issue, along with job creation.

 

- He was chairman at Bidvest (one of COBF's favorite South African businesses, run by Brian Joffe) as well, for a decade from 2004 until 2013. Ramphosa also has a strong relationship with the Oppenheimers (owners of De Beers and founders of Anglo American), who have long been South Africa's wealthiest family.

 

- Ramaphosa has hired Trudi Makhaya as his new economic adviser. Makhaya has been on the record constantly as favoring the approach to economic development laid out by Joe Studwell in his book, How Asia Works. For anyone who hasn't read it, I can't recommend it highly enough (whether you're interested in Naspers or not). Once you've read the book though, you'll likely conclude too that the threats to investors is being sensationalized.

 

- Finally, Ramaphosa has appointed Trevor Manuel and Tito Mboweni into top political positions in his administration. Both are regarded as some of South Africa's most intelligent, responsible, free market heavyweights since the end of apartheid in 1994. He also has kept former finance minister Pravin Gordhan close. Gordhan was one of the few officials who spoke out openly against Jacob Zuma's corruption during the previous ANC administration.

 

I could go on, but my point is that the South African president, likely for the next 10 years is going to be very pro-business and anti-corruption, while doing what he can within the law to address the issue of highly unequal land redistribution because of confiscations that took place during the 1970's under apartheid. As well as this, he has already raised international commitments of 55B USD (and is aiming for 100B USD, or 30% of our GDP) for infrastructure investment and job creation across South Africa.

 

Having read between the lines on some of the stuff Ramaphosa has said since being appointed, I'd say the following is by far the most likely outcome for SA over the next decade:

 

- The 'expropriation without compensation' threat that has been raised is in reality a shot across the bow for South African land owners who are sitting on idle land but refuse to sell even at a reasonable premium to current market prices. The 'willing buyer/willing seller' program currently in place has been a failure basically because too many owners have simply refused to sell unless they got paid exorbitant sums.

Some are now beginning to consider the idea that a reasonable return is better than none, in the case of returning land to black South Africans who were kicked off of it by force less than 50 years ago.

 

- The fact is though, that right now Ramaphosa is first targeting unused government owned land and similar areas. For example, the infamous District Six in Cape Town has sat empty since the forced removals and is owned by no-one. That land will likely be one big parcel that gets given back sooner rather than later. Similar examples exist around the country where the cleared land was simply never occupied. Another idea being kicked around is that places like Ysterplaat air force base (a huge suburb size area, close enough to Cape Town city center), which is currently completely unused, will be transformed into a massive affordable housing neighborhood. Because it's federal land, the government can simply award it to those communities from around Cape Town who can show they were displaced by forced removals and who currently live in informal settlements without any land titles.

Furthermore, disused government buildings, of which there are quite a few around Cape Town, can similarly be converted into affordable accommodation for displaced families.

Point is, there are far more levers available to be pulled in land redistribution than are currently being discussed, but then again it's usually drama and high tension that get the headlines.

 

- The other low hanging fruit that can be targeted are full or part privatization of numerous state entities like South African Airways, Transnet (rail), Eskom (energy), etc. I'd be a little surprised if this didn't happen going forward, since Ramaphosa has hinted at it a few times.

Because those businesses have some real corruption issues too, it could easily end up being a win-win for the government and whoever takes over because if you just cut out the wastage and illegality you'd immediately end up with some massive cost savings.

Plus, I get the sense that proceeds from any of those sales would be used by the government to create infrastructure projects or buy land off of willing sellers in order to redistribute it.

Anyway, that's the sense I've gotten from Ramaphosa's various utterances so far.

 

I could go on, but my guess is that's enough context for now. Basically, I don't see much reason for concern and, if anything, my thinking is South Africa could surprise to the upside over the next decade.

 

 

 

[plato1976]

Thank you for the valuable information

 

 

TL, DR: I don't think there's that much to be concerned about for anyone looking to invest in South Africa over the next decade. In fact, I think there's noticeably more potential for upside instead of downside.

 

No comment on Naspers specifically, but I'm from SA and live in Cape Town.

 

I think any investor fear for South Africa is substantially overblown. Reason is, Ramaphosa is essentially as much of a sharp, progressive, free market president as the country could've hoped for.

He was actually Nelson Mandela's choice as successor, but the ANC elected Thabo Mbeki instead. Ramaphosa then left his day-to-day role in the ANC and went into the corporate sector.

While in the private sector, he took advantage of the black economic empowerment (BEE) laws that made it easier for non-white South African business people to get loans, take part in joint ventures, etc, in order to participate more easily in the South African economy.

 

Basically, BEE was South Africa's main economic approach to affirmative action after apartheid had left 95% of the country's assets in the hands of 10% of the population.

Anyway, while numerous individuals did use BEE as a license to line their own pockets shamelessly and illegally (such as South Africa's previous president, Jacob Zuma), Ramaphosa actually played by the rules and ended up on South Africa's billionaire list.

 

Before becoming president though, and unlike some world leaders, Ramaphosa sold off his stake in Shanduka Group (which he founded) to avoid any conflict of interest.

Shanduka has large holdings in Standard Bank, MTN, and has a joint venture with Glencore. Earlier in his career as a businessman, he also held a large stake in McDonalds South Africa (the global burger chain).

On top of that, his wife is the sister of South Africa's richest person, Patrice Motsepe. Motsepe is a mining magnate, who like Ramaphosa, took advantage of the BEE laws but always stayed in bounds.

 

It's pretty unlikely then, given his historical approach to business and the economy, that Ramaphosa would suddenly screw over the major company he founded as well as his extended family, by messing noticeably with the rights of corporate South Africa as well as foreign firms.

 

A few more points on Ramaphosa:

 

- during his early ANC days, he was actually a founder of NUMSA (South Africa's largest workers union). As a result, even though he later went into the corporate sector, he has a lot of sway and experience in dealing with labor negotiations. That'll be needed in SA over the next decade since land redistribution is a primary issue, along with job creation.

 

- He was chairman at Bidvest (one of COBF's favorite South African businesses, run by Brian Joffe) as well, for a decade from 2004 until 2013. Ramphosa also has a strong relationship with the Oppenheimers (owners of De Beers and founders of Anglo American), who have long been South Africa's wealthiest family.

 

- Ramaphosa has hired Trudi Makhaya as his new economic adviser. Makhaya has been on the record constantly as favoring the approach to economic development laid out by Joe Studwell in his book, How Asia Works. For anyone who hasn't read it, I can't recommend it highly enough (whether you're interested in Naspers or not). Once you've read the book though, you'll likely conclude too that the threats to investors is being sensationalized.

 

- Finally, Ramaphosa has appointed Trevor Manuel and Tito Mboweni into top political positions in his administration. Both are regarded as some of South Africa's most intelligent, responsible, free market heavyweights since the end of apartheid in 1994. He also has kept former finance minister Pravin Gordhan close. Gordhan was one of the few officials who spoke out openly against Jacob Zuma's corruption during the previous ANC administration.

 

I could go on, but my point is that the South African president, likely for the next 10 years is going to be very pro-business and anti-corruption, while doing what he can within the law to address the issue of highly unequal land redistribution because of confiscations that took place during the 1970's under apartheid. As well as this, he has already raised international commitments of 55B USD (and is aiming for 100B USD, or 30% of our GDP) for infrastructure investment and job creation across South Africa.

 

Having read between the lines on some of the stuff Ramaphosa has said since being appointed, I'd say the following is by far the most likely outcome for SA over the next decade:

 

- The 'expropriation without compensation' threat that has been raised is in reality a shot across the bow for South African land owners who are sitting on idle land but refuse to sell even at a reasonable premium to current market prices. The 'willing buyer/willing seller' program currently in place has been a failure basically because too many owners have simply refused to sell unless they got paid exorbitant sums.

Some are now beginning to consider the idea that a reasonable return is better than none, in the case of returning land to black South Africans who were kicked off of it by force less than 50 years ago.

 

- The fact is though, that right now Ramaphosa is first targeting unused government owned land and similar areas. For example, the infamous District Six in Cape Town has sat empty since the forced removals and is owned by no-one. That land will likely be one big parcel that gets given back sooner rather than later. Similar examples exist around the country where the cleared land was simply never occupied. Another idea being kicked around is that places like Ysterplaat air force base (a huge suburb size area, close enough to Cape Town city center), which is currently completely unused, will be transformed into a massive affordable housing neighborhood. Because it's federal land, the government can simply award it to those communities from around Cape Town who can show they were displaced by forced removals and who currently live in informal settlements without any land titles.

Furthermore, disused government buildings, of which there are quite a few around Cape Town, can similarly be converted into affordable accommodation for displaced families.

Point is, there are far more levers available to be pulled in land redistribution than are currently being discussed, but then again it's usually drama and high tension that get the headlines.

 

- The other low hanging fruit that can be targeted are full or part privatization of numerous state entities like South African Airways, Transnet (rail), Eskom (energy), etc. I'd be a little surprised if this didn't happen going forward, since Ramaphosa has hinted at it a few times.

Because those businesses have some real corruption issues too, it could easily end up being a win-win for the government and whoever takes over because if you just cut out the wastage and illegality you'd immediately end up with some massive cost savings.

Plus, I get the sense that proceeds from any of those sales would be used by the government to create infrastructure projects or buy land off of willing sellers in order to redistribute it.

Anyway, that's the sense I've gotten from Ramaphosa's various utterances so far.

 

I could go on, but my guess is that's enough context for now. Basically, I don't see much reason for concern and, if anything, my thinking is South Africa could surprise to the upside over the next decade.

[Lakesider]

I think its worth noting management are acknowledging the risk and are taking steps to keep people happy.

 

From the multi choice spin off release,

"The transaction is expected to create further value for Phuthuma Nathi (PN) broad-based black economic empowerment (BBBEE) shareholders who have participated in one of the most successful BBBEE schemes in South Africa, already creating around ZAR12 billion in value for BBBEE shareholders. In recognition of PN’s support over the years, and to underline its commitment to transformation in South Africa, Naspers intends to allocate – for no consideration – an additional 5% stake in MultiChoice South Africa to PN shareholders, prior to the unbundling, to increase MultiChoice Group’s BBBEE shareholding. This means that the PN shareholders’ interest in MCSA and its dividend flows is expected to increase by 25%."

 

 

[MrB]

Naspers Jumps Most Since 2014 on Double Boost From MSCI, Tencent

 

https://finance.yahoo.com/news/naspers-jumps-most-since-2014-111005435.html