BUSINESS MAVERICK — INVESTMENT ANALYSIS

Naspers: to infinity and beyond

By Sasha Planting 30 May 2019
Caption
The significance of relaxing the rules by Chinese authorities lies in the fact that global asset managers can buy into the country’s A-class shares where Tencent yields now power.(Photo: EPA-EFE / Aleksandar Plavevski)

Cape Town based internet firm, Naspers, has announced it will list a subsidiary company, Newco, on the Euronext exchange in July. Newco will hold all of Naspers offshore technology assets, including Tencent, OLX and PayU, and will have a secondary inward listing on the JSE. Naspers will remain listed on the JSE.

Born and raised in Cape Town, but with internet investments across the emerging world, Naspers has always been proud of its JSE listing. However, this listing has held it back for multiple reasons. One is simply the local nature of the JSE – some international funds are not mandated to invest in currencies outside of Euros, dollars or sterling. Another is simple visibility. The JSE is the world’s 18thlargest stock exchange, not quite a minnow, but close.

Naspers values its assets at $140-billion (EU125,7-billion), however, its market capitalisation is $100-billion (EU89,8-billion), which means the share trades at a 40% discount to its actual value. It is precisely this discount that management is attempting to narrow.

Over the past few months management has taken steps to address the structural discount. These include the unbundling of MultiChoice in February 2019, a commitment towards not issuing new shares for staff incentives (instead, buying shares on the open market) and the sale of certain non-core assets, like the 2018 sale of its 11,18% stake in Indian e-commerce company Flipkart to US-based retailer Walmart. 

Management is also of the view that a contributing factor to the share price discount is its relative size on the JSE. The weight of Naspers in the JSE All Share Index (Alsi) increased from 5% in 2013 to 20% at present (25% in the JSE Shareholder Weighted Index). This has resulted in forced selling by local investment managers due to constraints on the amount of exposure they’re allowed to any single company.

For this reason, Naspers announced in March 2019 that it would list its international assets on the Euronext exchange. In May it provided the roadmap for the listing, which is scheduled for July 17, 2019.

This listing is aligned to our continued growth ambitions,” says CEO Bob van Dijk, “and will, we believe, help to maximise shareholder ambitions.”

Euronext, the largest stock exchange in continental Europe, and the 7thlargest in the world is becoming quite a lively hub for technology companies outside of the US, with about 100 technology companies listing on the pan-European exchange since 2014.

Naspers will join global technology firms like Philips and ASML, which provides lithography systems to chipmakers like Intel and Samsung. In the internet space, Dutch payment processor Adyen, which listed in June 2018 and doubled its price on listing, is arguably the most prominent. Adyen provides services to Netflix, Facebook and Uber and replaced PayPal as the main payment processor on Ebay. Naspers’ payment company Pay U, is similar but focuses its efforts on emerging markets where credit cards are not ubiquitous.

Other peers in the internet space include Rocket Internet, which is listed nearby, on the Frankfurt exchange, and has a market capitalisation of EU3.56-billion. Rocket builds online start-ups and owns stakes in various internet retail businesses. 

However, Naspers will dwarf these listings and together with Shell and Unilever will be one of the three biggest listings on Euronext.

Euronext is attractive because it connects and integrates all of the European markets in which NewCo will operate and will provide the group with access to broader and deeper investor bases, comprising the Eurozone, the United Kingdom, and other international investors,” says van Dijk.

An interesting aspect of the announcement is that Naspers will remain listed on the JSE and post the listing will own around 73% of the Amsterdam listed NewCo, along with the South African assets of Media24, Takealot, and some other small internet investments.

This has consequences for Naspers shareholders says Michael Treherne, portfolio manager at Vestact. “At the beginning of July, as a Naspers shareholder, you will be given the choice of getting more Naspers shares or getting shares in NewCo. Taking more Naspers shares will be like nothing happened in your life. If you opt to take NewCo shares, there will be capital gains to pay. We feel that the NewCo assets are the ones that you want to own, so we will be leaning towards owning more NewCo and less Naspers. If you are a trust or a company though, where your capital gains tax is on the high end, you will have to apply more thought.”

Any change in the price of Naspers is inevitably also good for the JSE. While publication of the prospectus is set for 1 July, it is likely that more and more information will dribble into the market, says Reuben Beelders, chief investment officer at Gryphon Asset Management. “It’s going to be interesting to see by how much Naspers re-rates. If it is trading at a 35% to 40% discount, then it could easily re-rate by 15% – 20%. That would be major for our market, probably up around 4%.”

Naspers’ rival (and partner in some instances), the giant Schibsted Media Group has done the same thing. Like Naspers, the Norwegian business was a traditional media company that progressed into online marketplaces and digital media.

It has listed all of its marketplaces outside of the Nordic region in the independent, listed company Adevinta. Schibsted will continue to run and grow its digital consumer brands with footprints in the Nordics, as well as its local marketplaces.

Like Naspers, Schibsted has retained a significant ownership position in Adevinta, and the new, separately listed company will have a simplified governance structure with no ownership or voting limitations.

Similarly, NewCo, which ‘almost has a name’, according to Van Dijk, will not inherit Naspers’ control structure which sees A- and N-shares carrying different voting rights.

However if our shareholding in NewCo falls to below 50% plus one share we will replicate the structure at the NewCo level to prevent a loss of control,” says CFO Basil Sgourdos. BM

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