Naspers in Prosus down 50 % in the last year. Half price or only half the story.

And welcome to Worldwide Markets, episode 698 for 14 October. My name is Simon Brown and we are recording this on late Tuesday morning.

Worldwide markets powered by Standard Bank, global markets, retail, and Shift, the global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest Forex rates anytime, anywhere. Shift powered by Standard Bank. Thanks to Standard Bank. Thanks to Shift for sponsoring this show. $698, two more to go to $700. But before we get to $700, let’s have a look at a chart of the week.

And it is, unfortunately, for reasons, it is the top 40. are basically well, Friday last week was the closing weekly low and I stress it was a weekly low. But and we have recovered a little bit. This chart is now to close on Monday. We’re up another percent on Tuesday or there’s about. So the level that we’re looking at is the level from sort of October, November last year. Then it was March, late March after the U.S. invasion of Iran.

Then it was around July and now we’re back here in October. Every time it’s bounced, but all those bounces have been lower. But remember the October last year was an onward, it was a bit of a consolidation onwards and upwards. Question is where to from here? Well, a couple of bits. Firstly, it is in part the story of unsupport. We see if that holds. It is secondly, Richmond under pressure. We’ve also got the precious metals. They’re all slightly down. They’re off those highs.

from around about February, March, some cases April of this year. And of course, Naspers Prosus is still in our top 40. So they certainly are playing a part there as well. It’s been messy, suppose is the way to say it, but it is, yeah, we had a really, really strong year last year and we’re up, so year to date.

We’ve about 4%, maybe three on the current move of Tuesdays so far. Over the last 12 months, we were up 19%. So we have to kind of put this into some perspective. Yes, it’s been a bit of a rough period, but relatively, we’re doing just fine. We’re doing just fine. Nothing massively to stress about. Everything will be fine.

We have a Standard Bank power hour next week. Actively managed ETFs, are flooding onto the market. The question is, are they any good? T’s and C’s, actively managed SPIVA, which is S &P indexation versus active will tell you no, but there are exceptions. Some sectors, the active does do better than the market, markedly. So typically in equity, only about 15 % of managers beat, but in some sectors,

but 80 % of managers beat. So there’s that. And then of course, some of these active are there because they needed a rule space. There wasn’t an index. Thursday, 22nd, 5.30, you can catch it in person at Rosebank, where you can catch the webcast, justonelap.com slash events for more information and bookings.

And then quickly a new feature that I’ve added to the website. We’re to be adding the dividends for the ETFs that are coming in that have been announced and not yet paid. And it’s that announced and not yet paid that is important. So, for example, Tuesday morning, the 13th, a lot of dividends came in. We’ll update this every Friday. We’ve got a lot of dividends that are going ex-div today, as in the 13th. Hold them at the close today. You’ll get that dividend on the 19th.

as I said, we’ll update this on a weekly basis. They won’t always be there because sometimes there won’t be any dividends. And at this point, it’s just a link from the homepage, but I think we’ll make a permanent marker for it. Just one lap.com slash dividends. Anyway, let’s get on to the main story today, which is NASPAS and Prosus. And the reason we need to talk about them is because they are having a horror show of it. And I thought, let’s go and have a look.

and how horror it is, what’s driving it and where is the value. So if we look at NASPAS, remember it did the 541 split October last year at about post split. It was about 1300. And since then, it has been one way traffic standard 717 for the close on Monday, which, look, you know what takes it back to 2024 sort of levels. Interestingly, it was in a very important resistance back in the day.

for what better part of 2023 and half of 2024, that sort of 700 level was fairly strong resistance. It broke it, ran, it’s come back, it’s looking ugly. And now of course we’ve also got Prosus, which is the other part of the equation. It’s got a little less data, but it again, it’s at down at it’s peaked at what also just over 1200.

in around October of last year. now down at 660. And once again, the level it’s at was a bit of resistance and it seems to be slicing through in terms of support. But let’s have a quick look at what the analysts say the price targets here for Prosus. Three holds, 10 buys, five strong buys. The low target is 738. The stock is at 664. Median averages 1100 and change and highs 1476. You will know

You’ll note here over 10 years, the stock has never traded at the average. It has maybe once or twice. It typically trades closer to that low, maybe a little bit above it. And then what do we get for a NASPAS coming through? How does that look? We’ve got price of 718, let’s call it, low price 86352, average 100, 1220 and high is 1642. All of these say cheap. So look.

That’s not the surprise. We knew that they would come through and cheap. So what is the story? 50 % down. Why? Well, really quite simple. But three quarters of that fall is 10 cent. 10 cent is down 37 % from its October highs. We’ll come to more 10 cent in a moment. But if 10 cent is down 30 odd 37%, well, there’s a big chunk of it. And then the round is stronger against the euro. That is down 12%. And it gets

So we start in Hong Kong with the Hong Kong dollar, then we go to Europe for Prosus and then ZAR into the round. But we take 12 % down Euro ZAR, we take 37 % down 10 cent, ergo 49 % there’s your fault. The whole code discount, the discount which we’ve spoken about on these two stocks for ever in a day, literally decades has not barely moved, still around the 40s odd. At around 664 Prosus shares about 820 of 10 cent, that’s half to all debt, right? So pay off the debt.

You pay 664, you get around 820 of 10 cent, and then you get everything else. iFood, Jet, OLX, Pay You, all of those bits are free. Just eat takeaway, that’s Jet. When I say Jet, just eat takeaway. It is the European food delivery. All of that is essentially free. That’s another 315 bucks that you get for free. So essentially, you’re paying 664 on Prosus, and you’re getting about 1135 of value.

Tencent itself is trading at about 13 to 16 times earnings from an average of closer to around 20. So I Tencent isn’t even particularly expensive on pretty much any metric. Let’s quickly have a squiz of Tencent. the trick is Tencent moved and these guys just followed them. And you know what? As I said, we’ve seen very little closing. Tencent price is 425, the low target is 430.

Average 663 high is 887. And we’ve got 32 buys, some holds. we’ve got a sell and seven strongholds. And again, if we look at the chart, it’s more or less what we’re seeing everywhere else. It’s just been selling off. It’s also had that tough time. So nothing particularly new there. So the story is that that discount, which has been structural buybacks, buybacks, the math works, but the close hasn’t. Ten cents.

CapEx surge is what has spooked the market. And that is the question we need to answer. The discount trade, forget that. The call is not value is there. The value is there. Absolutely. The trigger is Tencent. That’s what matters. Prosus is the cleaner. It’s less double discount, etc. It’s more liquid and directly benefiting. Naspace is technically cheaper on paper, but it definitely is the cleaner. So what have we got?

The key point perhaps is Nespresso and Proces, they are very much just priced for that hold code discount at this point. The weightings, Nespresso is still now the third cheapest, third biggest on the Cetrix, 7.84, that’s behind Cetrix 40, top 40, behind Goldfields at 8.86 and Angular Gold Ashanti at 7.91. This is from the 31 August minimum disclosure documents. Fun fact.

The JSC’s tech heavyweights have been overtaken by the oldest trade in South Africa. Gold. Hello gold. Who saw that coming? So we’ve seen the fall, we understand what’s happening there. It’s looking bleak. Where is that that that that that discount? So 10 cent steak is worth about 110 call it 111.

billion US dollars, everything else about another 40 billion. It does give us, as I said, a net asset value for Prosus of 1135 Rand. You’re currently paying 664, you’re getting a 41 % discount. That is a really, really good discount. Naspers, the numbers come pretty much the same. Interestingly, Naspers’ discount uses the NAV price for a Prosus.

But of course, Prosus isn’t trading at NAV. So when it says Naspers, it is some discount to Prosus. It absolutely is. And what it should be and Prosus, course, discount to 10 cent. it’s the cleaner, I think, is Prosus. Naspers is the bigger of the discount. But by now, you’ve got layers and layers, Turtles all the way down for the Terry Pratchett fans. So has the discount changed?

August 26 AGM sitting at around 43 percent. It did peak in around mid 2022. It peaked at around 65 percent. You can go to the Prosus website and the NASPAS website and you will find details on their discount to NAVs. You can also download Excel spreadsheets and run your own calcs if you want. So the discount has not massively changed at all over the last little while. It has closed from where it was four years ago, but not more recently.

Both boards said at the AGMs that buybacks not doing the narrowing that they had hoped, but they continue. you know, the gap is a strategic board priority, strategic board priority, trying to say that once slowly, for financial year 2027. What does priority mean if a 30 plus billion dollar buyback has not done it? I mean, what, what? There’s a simple solution here. Unbundle a tenset. Just give me

10 cent shares. Now you would have to list 10 cent in Amsterdam, you’d have to list 10 cent in Joburg because that’s where Prosus trades. Just unbundle it and give 10 cent to the shareholders and boom, discount is gone. I’ve been saying that for a decade more and it absolutely doesn’t happen. So they’ve bought back, Prosus has bought back 940 million of their shares. That’s $32.8 billion and that’s 16 % of NAV. So that’s certainly…

is helping, but it’s not closing it. It funds us by telling by selling the 10 cent share. So the math absolutely works. You buy one round of NAV for 59 cents. It’s a creative every single time. It’s like a snake eating a tail, except that this time it really is a creative. It absolutely is a creative just that the market’s like, yeah, not so interested. NASPAC sells Prosus shares and then buys back its own. So it’s sold.

about 12 billion of that. So they’re both trying to do it. And then Tencent is buying back its own shares as of May this year, which it’s done, what’s it done? 550 million, no, it’s done about 448, 912 million shares. 912, it’s bought back about 10%. So stuff gets complicated. sells Tencent. Tencent buys back their own shares. Prosus then buys back their shares. NASPAS sells Prosus shares and buys back.

Naspas shares. Yo, yo, yo, they have complicated this beyond the story. So what’s the 10 cent story? Because this is what matters. 10 cent is what is all about. Short answer, CapEx. Q2, 2026, which was reported back two months ago, 12th of August. Revenue was up 11%, but CapEx jumped 176%. It went from, what did it go from? 19 billion, remember?

252.8. The market had expected a jump to 32 billion. So free cash flow went negative. Ifrit’s profit at readable only up 1%, missed estimates and that CapEx spend absolutely hard. Management said, yeah, more to come. Hey, CapEx, because AI is the future. Remember that. So they are spending and as more Chinese designed chips become available, they plan to spend still more. So.

I mean, gaming also gave them some worries. Back in July, some gaming concerns, shares dropped some 7 % and truthfully macros and sort of sectoral. The Hang Seng tech has been under pressure from the US higher yields and US AI China chip tensions all above $100 isn’t helping weak Chinese confidence. All of that is not helping, but it is that capex. The core business at 10 cent is fine.

Q2 marketing services up 22 % domestic games up 17 fintech business services plus 9%. So it’s AI they launched an open weight and I’m going to try and pronounce it. Hunyang HY3 launched in July. It’s an open weight agent focused. It’s integrated into WeChat. Remember WeChat is the biggest communication platform in the world with a billion users. Only things at the same sort of scale are weirdly WhatsApp and Facebook.

How could I forget the Facebook? So this is really putting it into WeChat. We’ve got to understand that WeChat is the everything app. Everyone wants to be the everything app, including ShopRite in 6060. Inside WeChat, you can book cars, book hairdressers, order food, chat to your friends, do your banking, do your AI, do absolutely everything. So the debate which we have to think to ourselves is, is Tencent meta 2022?

Meta at that point was hammered for their Metaverse capex, but it is rerated once we saw some spending discipline. driven ads started showing up. They were making money from it. When we start to see maybe some pullback on the capex spend and maybe when we start to see some direct benefit from the AI spend, then we’re in business. So there’s also more than just 10 cent. There’s a food delivery. We had a letter from the CEO. When was it? 8th of October, which is

Thursday last week. Was it Thursday last week? It was last week. So Just Eat Takeaway Jet is back to growth. Orders had been declining for 55 months. 55 months. That’s insane. That’s four and half years. Press has took control in December of last year. Orders down 9 % by September. They were plus 0.1. Not a lot, but symbolic. It is positive. iFood, which is their LatAm Brazil, about 80 % app market share, but the competition is

spending $150 million a month to try and do the land grab. They only lost five points, leaders in the market losing 20%. So they’re doing 20 points, they’re doing better. It’s tough, but they’re still the dominant player there. So they’ll be fine. iFood is also diversifying non-food delivery, growing almost 50 % and 40 % of revenue. And the rest of Portfolio OLX, is their classified, growing profitably, Despiga growing 20%, Pay You profitable scaling.

So Prosusors consciously trading short term profitability for growth in jet, just eat takeaway and high food, earnings will be lumpy in the near term. That’s just the story. what is the verdict here? Simple, 10 cent at 13 to 16 times PE versus a history, earnings growing, buying back the stock. That is bull case, more bull case. Prosus gives you 10 cents and 19 % discount.

after debt with another 440 billion of assets you are getting around a 40 percent total including other assets discount. Continuous buybacks are recreative because you’re buying them at discount. strength is hurt, Rand weakness helps. NASPAS is at support at around 700. Bare case, the discount has been forever. Cheap can stay cheap.

forever and has stayed at about that for 40 % discount. CapEx from 10 cent could keep rising and cash flow negative in Q2 and could continue negative. China and Hong Kong tech sentiment and hostage. There was a stat I saw a while ago. Nvidia was bigger than the entire Chinese tech sector. The Chinese tech sector is not that bad, frankly, not even close to that bad, but sentiment matters.

Prosus has broken the 700, still in down trade. Food delivery is a cash-burned war in Brazil. Those wars are terrible. You might win them, but at what cost? So what changes the story? What are we looking for? Mid-November we get 10 cent Q3 results, big number. Watch the CAPEX. 24 November we’ll get Prosus and NASPAS interim. What are they talking around? How’s JET and iFood doing? What’s the buyback? All of that sort of thing.

And if we start to see sort of a disconnect between the two. So far we haven’t. And of course, weakness in the the ZY Euro moment we’re seeing straight. So if you believe Tencent is a great business going through a heavy investment here, Prosus it 664. Cheap way to own it. You get a free option and all the rest. If you don’t want China tech risk, the discount is not enough reason to buy. For most top 40 ETF holders, you already got about 8 % of NASPAS, another three or four of Prosus. I’ve got a lot of top 40 ETF.

Hence, I’ve got a lot of NASPAS. I’ve probably got some of my RA as well. I don’t think I need to buy more, but it is absolutely cheap. It is absolutely cheap. And the question is, is the 40 % discount a bargain or a permanent feature? I think it’s a permanent feature. So we need 10 cent to turn. That is what matters more than anything. 10 cent turns, then we’re in business. Keep an eye. Results out. That will give us an indication. Worldwide markets powered by Standard Bank, global markets, retail and shift.

global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest Forex rates anytime, anywhere. Shift powered by Standard Bank. That’s it for this week. Thanks to Shift. Thanks to Standard Bank. Thanks to you for listening all the way to the end. My name is Simon. Next week, I want to do Boxer. Those results that came out yesterday, Monday. Those are good numbers. My question is going to be quite simple. Is Boxer the next Shoprite? There are only 600 stores.

Shoprite what? 3000 stores? Long way to go, a lot of tech, but we’ll find out next week’s show. Until then, look after yourself if you can, look after somebody else as well. Cheers all.