The Best Way To Invest In The Next Big Thing In Emerging Markets Is By Investing In The Current Big Thing

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Includes: NPSNY, RCKZF, TCEHY
by: Kevin Carter
Summary

Leading African ecommerce giant Jumia filed to go public.

Rocket Internet holds a stake in Jumia.

Naspers is spinning off its non-South Africa Interests.

Naspers' spin-off includes its stake in China's Tencent Holdings.

One potential way to gain access to the next big company in the emerging markets is by buying the current hot companies in the emerging markets. Many of the largest emerging markets companies have investments in newer companies involved in new technologies or that are operating in locations outside of their home country. Additionally, these same larger companies have separate business units which operate within the larger corporation that may be spun out to current shareholders. Such is the case with two recently announced IPOs: African e-commerce company Jumia, in which Germany’s Rocket Internet (OTC:RCKZF) has an interest and Naspers’ (OTCPK:NPSNY) $134 billion stake in Chinese internet giant Tencent Holdings (OTCPK:TCEHY).

Investors can gain access to Jumia and Naspers' non-South Africa assets by investments in Rocket Internet and Naspers which are both publicly traded.

Jumia

According to the Wall Street Journal, Jumia filed paperwork with the Securities and Exchange Commission (SEC) for an initial public offering (IPO) on the New York Stock Exchange (NYSE).

Jumia, according to the Wall Street Journal, is the largest e-commerce platform in Africa and would be the first technology company to launch on the NYSE. The company declined to give details on the expected size or timing of the IPO.

Jumia has grown rapidly, with operations in 14 African countries since it was launched in 2012 and has 81,000 active merchants, according to the article. The company, out of necessity, has built most of its own infrastructure including JumiaPay, which accounted for more than half of its​ transactions in Nigeria and Egypt in 2018, according to the article. The company plans to use the proceeds from its offering to further expand its business.

Germany’s Rocket Internet holds a 28% stake in Jumia, according to the Wall Street Journal.

Naspers’ Spin-Off Of Its Internet Assets

According to the Wall Street Journal, Naspers plans to create a European-traded technology company that will hold its $134 billion stake in China’s Tencent Holdings. The new company will consist of all of Naspers' internet interests outside of its home South Africa. Also included is Russian social-media operator Mail.ru Group (OTC:MLRYY). Naspers will hold 75% of the company after the listing.

According to the Wall Street Journal, the listing is intended to unlock value for Naspers' shareholders and allow investors to directly access its portfolio of international internet assets. The article went on to note that Naspers' current market value of $100 billion is less than the value of its Tencent stake.

98.5% of the value of the new company would be made up of minority interests in other listed companies, according to the Wall Street Journal. These include German food-delivery service Delivery Hero (OTCPK:DLVHF) and India-based travel business MakeMyTrip (MMYT).

History Of Unlocking Value

These two transactions join a list of several others in recent years. Tencent spun-out China Literature (OTCPK:CHLLF) in 9/17 and its Tencent Music (TME) unit in 12/18. Baidu spun-out iQiyi (IQ) in 3/18. YY Inc. (YY) spun-out its Huya Broadcasting (HUYA) unit in 5/18.

Summary

Many of the largest emerging markets e-commerce companies have interests in companies producing the next generation of technology products. Additionally, many have operating units that can be spun-out to create potential value for current shareholders. Jumia’s IPO and Naspers’ spin-off of its non-South Africa internet interests are two recent examples of this.

Thus, buying the large emerging markets e-commerce companies may offer investors value waiting to be unlocked.

Disclosure: I am/we are long RCKZF, NPSNY, TCEHY, CHLLF, DHERO, HUYA, MLRUY, MMYT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the founder of the Emerging Markets Internet and Ecommerce Index, which is licensed to Exchange Traded Concepts and serves as the basis for the Emerging Markets Internet and Ecommerce ETF (EMQQ). I manage an Emerging Markets Hedge Fund that is sometimes long constituents of EMQQ and myself and my family are long EMQQ.