Finding an Opening into Naspers

Includes: NPSN, TCTZF
by: Travis Johnson

At times like this, with global markets running in fear of a bubble and bringing market corrections down upon us all, I like to look for companies that I've been interested in but couldn't justify paying for, and see if bargains are available.

Yesterday I did just that and opened a small entry position in Naspers Ltd. (NPSN). I wasn't actually intending to buy yesterday, and had no idea Naspers would fall this far, but had a limit order in at what I considered last week to be a fair price for a small purchase.

I've written about Naspers before, in more detail, and you can review those posts if you like (I looked at Naspers' history and prospects, and I talked about its highest-growth partially-owned division, Tencent Holdings (TCEHF.PK)).
pay tv
And I made clear that I had some reservations about Naspers, the most significant one of which was that I was afraid its valuation might be too rich given the risk of coming competition in its most profitable division, South African pay TV.

But yesterday the price cratered by well over 10%, due to the global market decline as well as to a Naspers-specific issue: It's issuing a secondary offering to raise money for acquisitions, which certainly shouldn't impact shares this much (especially given its past success in this area); one of the competitors that we already knew would be coming last week announced the impending launch of a pay tv service in some of their African markets; and, of more immediate impact, most likely, there was probably some fear for what will happen to Tencent Holdings when the market opened in Hong Kong tonight, since Naspers owns more than $2 billion worth of that Chinese company at yesterday's prices (36% of the company, as of the last filings I've seen) ... which translates to mean that roughly a third of Naspers' market cap consists of Tencent shares.

And while it's still not a cheap stock it at least has given back some of the speculative advance it made in the first part of this year, so I'm somewhat comfortable entering a position here. I bought shares yesterday afternoon at $23.85. As you can see if you check the quote, I certainly missed the bottom -- it dipped well under $23 in a closing-hour flurry of selling.

So it's not a shock to say that this may well be a bit too early to be buying, if all the pundits are right about a market calamity being right around the corner. The shares, after all, have climbed fairly dramatically since last Fall's bargain prices in the mid-teens, which came before I had heard of the company. Naspers has its fingers in emerging markets not only in South Africa and elsewhere on the continent, but around the world in all the hot spots including Russia, Thailand, China, Brazil (and just look at Gol and Sadia to see how my portfolios were getting racked by Brazilian fear yesterday, too). Tencent is by far the largest of those investments, but there are many other fairly big ones ... and if those investments crater, the share price will doubtless follow.

But with a strong position as a leading publisher and TV and internet service provider in South Africa, and with diversification in its international investments, I think the company will weather any storm reasonably well. It's quite large, about a $7 billion company, so even if Tencent or goes bankrupt (neither seems likely to me), the company should survive.

And of course, for a company that's on the lookout for promising investments in media and internet stocks around the world, and a bit frustrated about the high costs of some potential acquisitions, a nice stock market downturn might be just what the doctor ordered. That is, if you've got the patience to wait a few years.

NPSN 1-yr chart

npsn chart