Naspers: A Nice, Global Business Mix


Naspers (NPSN) is an interesting company that I've been checking in on from time to time, since they helped to IPO China's biggest IM company, Tencent, of which they remain a major owner.

Tencent is actually probably the first reason that individual U.S. investors hear about Naspers, operating as they do primarily in South Africa. But as South Africa's strongest multinational (at least, the strongest one that has nothing to do with mining), they've got a nice mix of businesses around the world that seem well poised to take advantage of growth areas in emerging markets (and they're quite large at about an $8 billion market cap, so don't believe Yahoo Finance when they tell you the ADRs are for a $700 million company).
Beginning in Print
Naspers began life as a politically-motivated newspaper publishing company eons ago, an Afrikaner voice following the Boer war. They've evolved since, building an ever bigger publishing empire that encompasses books as well as newspapers and magazines and related online properties, primarily in South Africa (called Media24), and a large pay TV business (Multichoice) that has a big presence in several countries across southern Africa.

They were listed in the U.S. in 2002 [NASDAQ: NPSN], an opportunity no doubt simplified by the emergence from the apartheid era and by Naspers' own broader business that had gradually evolved and no longer focused on the publishing of a single political view (including publishing in English since the 1960s, and for black audiences since the 1980s).

Over the past ten years, Naspers has focused on some significant growth areas. The conglomerate is fairly complex now and sometimes difficult to analyze, but that seems a fair price to pay for great decisions like their early-stage investment in Tencent.

Though they're still widely considered to be a publishing company, the majority of their business is now in television - primarily in South Africa, but also across sub-Saharan Africa and with pockets of market share across Europe and Asia. This business consists of satellite television as well as other pay-tv channels and investments, including movie channels and sports networks. Acquisitions continue in this area, including purchases of shares of a Greek pay-TV company this past year. Unfortunately, there is a new era of competition dawning in South African pay TV, so the company expects their margins, and possibly their sales, to suffer as new competitors enter this marketplace over the next couple of years.


Internet Growth
And while the newspapers and magazines, including some of the leading sport, lifestyle and news magazines in their markets, still generate a nice amount of cash, and they continue to build on this area (including the recent investment in Abril, a leading Brazilian publisher), probably the most important growth engines for Naspers are internet-related. Broadband service, the Tencent QQ service (that's now expanding to Thailand), and other internet-related holdings make up a small portion of the business so far, but are a significant focus going forward. This is not unlike the influence MySpace has on News Corp. - a tiny percentage of the sales and earnings, but a big chunk of the perceived future of the company.

The internet businesses at Naspers are quite varied; there are some that are owned outright, and others in which they're large minority investors. The most recent buys have been a big stake in, the largest Russian language email portal, and MXit, a South Africa provider of cell phone instant messaging. They also own the biggest portal in Thailand, some nascent internet properties in India, and a big chunk of Tencent, whose is the fifth-most visited web property in the world (if you believe Alexa), to go along with their core internet access services in South Africa (and the online corollaries to all of their publications).

Koos Becker, the CEO who has overseen Naspers' rise as a diversified media power, is taking a sabbatical this year - not something you see a lot out of American CEOs (not least because he's not being paid for his year off - the horror!), but he is planning to be back next year for a final five year term, and I'd be surprised if anything changed dramatically at the company in his absence.

Investing in Africa
But regardless of the fact that I appreciate their focus on media acquisitions in emerging markets, and on ambitious goals including breaking into the satellite TV market in China, I haven't yet bought shares. That's largely because, given the fact that I don't yet have an understanding of the prospects of the South African economy, I'm not terribly confident in any valuation of the company going forward, given that 75% of their sales and most of their profit still flow from their home country..

Still, I like what they're doing ... and I especially like that they have an opportunity to consolidate the fragmented media markets of sub-Saharan Africa in the years to come (though their efforts so far to bring pay TV and other services to Angola, Nigeria and the like have so far been very challenging - albeit usually profitable - due to local regulation). Investing in the future economic growth of Africa without focusing on the mineral riches appeals to me (especially with a nice broad emerging markets kicker with a touch of Thailand, Brazil, China, India, and Russia), and there are very few companies that can say they've got that kind of exposure.

Chairman Tom Vosloo urged caution in their last earnings release: "We do not think this [rapid growth] can last indefinitely, especially as indications are that the macroeconomic environment in South Africa may be tightening."

That's a good point, though also probably part of an "underpromise" culture at Naspers. And absent any more information that forces my hand or increases my confidence in their future growth prospects, I'll probably wait for a better price.

Disclosure: I do not currently own any of the companies mentioned here, but I may buy Naspers in the future.

NPSN 1-yr chart

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