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Background and overview of Naspers (NPN)
Founded in 1915, Naspers is a global internet and entertainment group and one of the largest technology investors in the world. Operating in more than 120 countries and markets with long-term growth potential, Naspers builds leading companies that empower people and enrich communities.
We run some of the world's leading platforms in internet, video entertainment and media. The group has sizeable investments in Tencent (SEHK 00700), Mail.ru (LSE: MAIL), MakeMyTrip Limited (NASDAQ:MMYT) and Flipkart. Naspers is listed on the Johannesburg Stock Exchange (NPN.SJ) and has an ADR listing on the London Stock Exchange (LSE: NPSN). Today, the Naspers group is organised into six business areas: Classifieds, Payments, B2C eCommerce, Ventures, Video Entertainment, and Media. We also hold sizable investments in listed assets Tencent, Mail.ru and MakeMyTrip Limited. Our Classifieds business provides mobile and digital local marketplaces that connect more than 300 million buyers and sellers every month in more than 40 countries around the world. Our companies OLX, Avito and letgo have the #1 mobile classifieds app in more than 20 countries.
PayU is one of the largest Payment Service Platforms in the world, focusing on markets with long-term growth potential. It has leading positions across Africa and the Middle East, Central and Eastern Europe, India, and Latin America. PayU’s 250 payment options enable safe transactions in 16 countries for more than 160,000 merchants, allowing them to focus on reaching the 2.2 billion consumers in our markets.
Our B2C eCommerce segment contains our business to consumer e-commerce companies and investments. These businesses are leading players in Latin America, Central and Eastern Europe, the Middle East and Africa and include eMAG, Flipkart, Konga and Takealot, as well as our investment in the leading online travel business in India, MakeMyTrip Limited.
Below an image showing some of Naspers's main brands and investments. South Africans are sure to recognize a number of the brands in the image below.
We run some of the world's leading platforms in internet, video entertainment and media. The group has sizeable investments in Tencent (SEHK 00700), Mail.ru (LSE: MAIL), MakeMyTrip Limited (NASDAQ:MMYT) and Flipkart. Naspers is listed on the Johannesburg Stock Exchange (NPN.SJ) and has an ADR listing on the London Stock Exchange (LSE: NPSN). Today, the Naspers group is organised into six business areas: Classifieds, Payments, B2C eCommerce, Ventures, Video Entertainment, and Media. We also hold sizable investments in listed assets Tencent, Mail.ru and MakeMyTrip Limited. Our Classifieds business provides mobile and digital local marketplaces that connect more than 300 million buyers and sellers every month in more than 40 countries around the world. Our companies OLX, Avito and letgo have the #1 mobile classifieds app in more than 20 countries.
PayU is one of the largest Payment Service Platforms in the world, focusing on markets with long-term growth potential. It has leading positions across Africa and the Middle East, Central and Eastern Europe, India, and Latin America. PayU’s 250 payment options enable safe transactions in 16 countries for more than 160,000 merchants, allowing them to focus on reaching the 2.2 billion consumers in our markets.
Our B2C eCommerce segment contains our business to consumer e-commerce companies and investments. These businesses are leading players in Latin America, Central and Eastern Europe, the Middle East and Africa and include eMAG, Flipkart, Konga and Takealot, as well as our investment in the leading online travel business in India, MakeMyTrip Limited.
Below an image showing some of Naspers's main brands and investments. South Africans are sure to recognize a number of the brands in the image below.
Naspers share price vs Tencent share price for last 5 years
As the graphic above shows Naspers'share price growth is lagging behind that of their biggest holding, which is Tencent, the biggest internet/social media company in China. Naspers owns roughly a third of Tencent
Financial review:
So let look at the financial results for the 6months ending in September 2017
Operating Revenue: $3.1billion
Cost of providing services and sale of goods :$1.824billion
Selling, general and administration expenses: $1.252billion
Operating profit: $11million
Share of equity accounted investment (basically Naspers' share of Tencent's profits as rest of equity accounted results are negligible compared to Tencent's contribution): $1.447billion
Taxes: $148million
Profit for the period: $1.076billion
Per share statistics:
Diluted headline earnings per share $2.07
Dividend per share: none declared for interm period
Cash per share (cash on balance sheet): $7.3
Operating Revenue: $3.1billion
Cost of providing services and sale of goods :$1.824billion
Selling, general and administration expenses: $1.252billion
Operating profit: $11million
Share of equity accounted investment (basically Naspers' share of Tencent's profits as rest of equity accounted results are negligible compared to Tencent's contribution): $1.447billion
Taxes: $148million
Profit for the period: $1.076billion
Per share statistics:
Diluted headline earnings per share $2.07
Dividend per share: none declared for interm period
Cash per share (cash on balance sheet): $7.3
The graphic below shows the contribution to Naspers (NPN) revenue for the 6months per income stream (note this is revenue before equity accounted part is subtracted so the total amount shown in the pie chart is far greater than the $3billion reported above. But it does show readers where revenue is earned for the group.
From the pie chart above it is clear that majority of revenue for Naspers comes from Internet services, which contributed 59.3% to NPN's revenue, second biggest revenue earner was video entertainment, with 19.6% or $1.78billion and this was closely followed by E-commerce with 17.5% or $1.59billion dollars
The results which NPN would be the first to admit is largely driven by what happens with Tencent, The rest of their operations are so small that it even if it showed tremendous growth it would hardly impact the results as the majority of Naspers's earnings comes from their equity accounted investments driven by Tencent,
Without their equity accounted investments NPN would have earned a mere $11million in profits during the period instead of the total profit reported of just over $1billion. This shows the massive contribution their equity accounted investments in Tencent and Mail.ru makes to their earnings. Mail.ru brouht in $20mil in profits (more than all of NPN's non Tencent operations).
Without their equity accounted investments NPN would have earned a mere $11million in profits during the period instead of the total profit reported of just over $1billion. This shows the massive contribution their equity accounted investments in Tencent and Mail.ru makes to their earnings. Mail.ru brouht in $20mil in profits (more than all of NPN's non Tencent operations).
Valuation
Based on NPN's financial results and the fact that they basically earned $2.07 per share (or R28 for 6months usng R14/$1 as the exchange rate), a decent valuer would multiply that by 2 to get estimated full year earnings (and then multiply that by about 17 to get a value on Naspers). Why 17? Well thats the JSE average PE ratio if NPN is excluded from it.
This would provide a share valuation on NPN of R952 a share. So why on earth is it trading at R3809 odd a share?
Well thats because their stake in Tencent is worth R2.3trillion (or R5 353 a share). And with Tencent showing no signs of slowing down, we therefore dont expect Tencent to slow down either.
At a price of R3809 odd its trading at close to a 30% discount to its holding in Tencent). If we value Naspers as a holding company, it should trade between 10% and 15% discount to its assets which will make NPN shares worth R4550. And that is our valuation of Naspers at this point in time, based purely on their holding in Tencent and by valuing them as a holding company. Below graphic presents our valuation compared to current price
This would provide a share valuation on NPN of R952 a share. So why on earth is it trading at R3809 odd a share?
Well thats because their stake in Tencent is worth R2.3trillion (or R5 353 a share). And with Tencent showing no signs of slowing down, we therefore dont expect Tencent to slow down either.
At a price of R3809 odd its trading at close to a 30% discount to its holding in Tencent). If we value Naspers as a holding company, it should trade between 10% and 15% discount to its assets which will make NPN shares worth R4550. And that is our valuation of Naspers at this point in time, based purely on their holding in Tencent and by valuing them as a holding company. Below graphic presents our valuation compared to current price