Small jump for Naspers and Prosus

Investors were willing to take a stab at Naspers and Prosus on Tuesday (25 October), following Monday’s sharp decline in the share prices of the two.

The twins only recently regained their popularity, after announcing that it will sell down its Tencent shareholding and use the proceeds to repurchase Naspers and Prosus shares in a bid to unlock value for shareholders.

At the time of the announcement at the end of June, the Naspers share price jumped from just above R1 900 to a high of R2 853.

Prosus increased from below R850 to nearly R1 220 within days.

A lot of this was undone on Monday.

While general uncertainty in financial markets continued to put a dampener on share prices, Chinese technology stocks took a beating when President Xi Jinping was elected for a third term and announced several new appointments to key government positions.

The decline in Chinese stocks, including Tencent, saw Naspers and Prosus fall close to the lows they were at before management announced its big plan to reduce its investment in Tencent.

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Value

Traders and long-term investors seem to regard the fall in the two share prices as an opportunity.

Naspers topped the list of as the most actively traded share on the JSE in terms of volume on Tuesday, with more than R2.68 billion worth of shares changing hands. Trading in Prosus shares came to nearly R1.9 billion.

However, investors remained cautious and, after a volatile day, Naspers ended 2.5% higher than the previous day’s low price and Prosus increased by 1.5%.

Naspers had been 3.6% higher during the morning session and Prosus 2.5% higher.

Buying opportunity

Asief Mohammed, chief investment officer at Aeon Investment Management, says the drop in the share prices presents a buying opportunity.

“The markets’ reaction to the news of a third term for President Xi Jinping points to investors being concerned, but we see it a bit differently.

“One must look past the scepticism and notice the opportunities.

“China’s aim of growing prosperity and equality means it will support and grow ‘champion’ companies and industries. We believe Tencent is one of these champions that will be built responsibly.  The fundamentals for Tencent are good.”

Reservations notwithstanding …

Mohammed says his view of Naspers and Prosus offering value still stands, despite his “reservations” about the group’s management and board of directors.

Aeon Investment Management was one of the signatories of an open letter to the directors of Naspers when they devised the dual listing structure that created Prosus, saying it would turn out to be ineffective.

Read: Asset managers slam Naspers, Prosus

“They didn’t listen to their investors, but went ahead.

“We turned out to be right. However, Naspers and Prosus are just too big to ignore,” says Mohammed.

“Few investment managers will not hold some in their portfolios,” he adds, indicating that the current prices of the shares will most likely turn out to be a very good investment three to five years from now.

‘Surprising’ overreaction

Afrifocus Securities regularly keeps its clients updated with a calculation of the discount between Naspers and Prosus and the value of their underlying investments, of which Tencent is by far the biggest asset.

The volatility in the market led to Naspers’s discount to net asset value increasing to 52.6% on Monday.

“Great time for management to buy back shares. However, no cash unless they sell Tencent at the lows,” according to the stockbroker.

Tebogo Mokone, portfolio manager at Afrifocus, says the price plunge was a “surprising” overreaction to the news of President Jinping being elected for another term and probably just a reaction to the already uncertain investment environment.

“Share prices are under pressure because of rising inflation, high interest rates and uncertainty about economic growth,” he says.

“Not having a new Chinese leader would reduce uncertainties, not increase [them].”

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Share buyback

Investors are probably hoping Naspers and Prosus are taking advantage of the volatility to buy back some shares at these low prices, and equally hope that they sold a lot of Tencent shares before its price fell.

Prosus has been updating Naspers shareholders about its repurchase programme on a regular basis.

“Considering the regulatory requirement to provide weekly updates on Prosus N ordinary shares repurchased, Prosus decided to also provide voluntary updates to Naspers shareholders on the Naspers N ordinary shares it purchased,” says Prosus, being the one that receives the money from selling Tencent.

Its most recent update, for the period 10 to 14 October 2022, notes that the group purchased 636 174 Naspers shares at an average price of around R2 208 per share for a total consideration of R1.4 billion.

Prosus bought 369 148 Naspers shares at an average R2 361 (nearly R872 million) between 5 October and 7 October 2022, and some R2.35 billion worth of shares during the two weeks ending 21 September.

The next update on the share repurchase programme will show whether Naspers/Prosus has taken advantage of the low shares prices too.