As I wrote in my Special Report: “10 Picks for the Emerging Markets Bounce,” (on my subscription JubakAm.com site) I’m adding Naspers (NPSNY) to my Jubak Picks Portfolio.
It’s unlikely that you know much about this South African Internet giant–after all no U.S. analysts follow the stock despite its $100.7 billion market cap. Most of Nasper’s value comes from its ownership of shares of Tencent Holdings. The stake, now worth $155 billion, was acquired years ago. And, yes, your math is right–Naspers as a whole trades for less than the value of its holdings of Tencent. But partly that’s also because this former newspaper-focused company has become something of a venture capitalist in fledging Internet venues such as Tencent was long ago and as Multichoice is now. And that role requires Naspers to put up cash now in the hope of future returns. Naspers is in the process of spinning off Multichoice, Africa’s largest pay-TV company by subscribers with 13.5 million households as customers. But the consensus on Wall Street and in the media industry is that pay TV in Africa faces daunting competition from Netflix (NFLX) that diminishes its market value. The number of pay TV users in sub-Saharan Africa (total population of more than 1 billion) is expected to jump by 75% between 2017 and 2023 to 41 million, according to Digital TV Research. More than half of that will sign up for satellite TV. Over the same period, however, subscriptions of streaming services (including Netflix) are projected to grow 6 times to nearly 10 million. That’s one reason that Naspers is spinning off Multichoice so the company will have the capital to expand its pay TV, satellite, and streaming package. In addition Naspers is betting that by spinning off the cash-burning Multichoice it will be able to close the valuation gap on its shares of Tencent Holdings. The plan is to use the cash from selling part of that stake to invest in new Internet businesses in the developing world. Shares of Naspers are down 29% from January 22 2018 to September 20.
The New York traded ADRs for Naspers were down 2.83% today to close at $41.96. I’m setting an initial target price of $52 a share.