For European tech, it’s been an ongoing concern that the world’s third-largest economy hasn’t had a flag-bearing consumer tech giant in the league of Apple, Google or Amazon. Now it going to get one. Sort of. For SA, it’s been an astounding accomplishment that it has a company of that stature. Now it’s going to lose it. Sort of.

Naspers’ European listing later in 2019 has profound implications for both regions, but for the company, the problem is a more immediate issue; trying to solve a complicated valuation issue. However, the stock market reaction to the decision to list effectively 25% of the company on the Amsterdam part of the Euronext exchange has been muted.

Does that reflect on the quality of the plan? Or to put it another way, why, if the intention was to boost the value of Naspers, did the company’s stock price remain effectively flat?

Naspers CFO Basil Sgourdos says this is entirely understandable.

“It hasn’t moved because we are trying to solve a structural issue. It’s not a sentiment issue,” he said in an interview with Business Maverick.

Only once the structure has actually changed will the share price react, and even then the change may not be as dramatic as shareholders might hope. The problem is that Naspers is trading at a huge implied discount, and as the investment world knows only too well, this is because its 31.2% stake in Chinese giant Tencent is worth about $134-billion, which dwarfs Naspers’ own market capitalisation of about $99-billion.

For Sgourdos the key to the problem is that Naspers now constitutes almost 25% of the entire JSE, which is, for all kinds of reasons, a ceiling level. So whenever it rises to around that level, local investment funds tend to sell the share not necessarily because they want to, but because they have to for diversification reasons.

The solution Naspers has come up with is to effectively list 25% of the company in Amsterdam, which they hope in time will have the opposite effect. The company will instantly become the biggest listed consumer-facing tech company in Europe, which may result in investors needing to hold the share to match local indices.

So why Euronext rather than, for example, the biggest tech market in the world: the Nasdaq? The question is more complicated than it seems.

Sgourdos says they looked at it very carefully.

“We don’t want to add extra complexity,” he said. The rules of the Amsterdam exchange align very closely with those of SA, and it meant the company could retain a uniform management team and board.

“We are creating an investment three times bigger than any other peer-group company on the exchange, so there might be an element of scarcity value. It is a very big exchange with 1,300 stocks, worth $3.6-trillion, and very good liquidity.”

However, it should also be noted that Nasdaq has a much higher average stock value, so it’s possible that Naspers is giving up some potential here. For example, Tencent, in some ways the measure of Naspers, trades on about 36-times annual earnings, compared to Naspers which trades on about 32-times annual earnings. This price/earnings ratio, or P/E, is even higher in the case of Nasdaq listed Amazon which trades at 64-times annual earnings. Still, others trade lower, even on the Nasdaq, so it’s possible the difference is not huge.

So if Naspers is going to make this move, why not go the whole hog, rather than listing a meagre 25%? Sgourdos says this also relates to the issue of not complicating things too much. There is also a big capital gains tax issue if they were more than 70% listed outside SA.

At the suggestion that the easier strategy would have been simply to unbundle the Tencent stake to shareholders, Sgourdos very firmly turned down that idea.

“We believe in Tencent’s future, we work well together, we often co-invest, it’s a core part of our strategy”, he said.

Is this just the first step in a gradual easing out of South Africa? Or, to put it another way, will Naspers incrementally exit SA by listing some of its huge array of investments separately, most likely now in Amsterdam. On this, Sgourdos equivocates.

“I just don’t know. We continue to grow; we are a high-growth business. In that type of construct there will always be room for more movement. But who knows; it really depends”.

He does point out that Naspers has a history of supporting businesses until they become listable. The Russian company mail.ru was not public when Naspers bought in, neither was Tencent.

“But there is nothing immediately on the agenda”.

In the meantime, Naspers is doing what it has done so well in the past; consolidating its huge fleet of startup tech companies, now with a bit more focus on classifieds, online food delivery, payments and Amazon-like business-to-customer sales operations. There are also, says Sgourdos, a whole range of new ventures, particularly in health-tech and edu-tech.

“We will support them and bring them scale,” he says.

“Hopefully we can create a whole new set of Tencents”. DM