Desert Lion Capital - Naspers: A Contrarian Bet With Attractive Valuations

Feb. 26, 2022 3:31 AM ETNaspers Limited (NAPRF), NPSNYTCEHY, TCTZF, PROSF, PROSY6 Comments4 Likes

Summary

  • Naspers/Prosus/Tencent has turned from one of JSE’s high valuation darlings into a contrarian bet with attractive valuations.
  • China-related concerns justify a higher risk premium and discount rate.
  • Tencent is incentivized to under-report earnings, so they are likely earning more than it appears.

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The following segment was excerpted from this fund letter.

Naspers Limited (OTCPK:NPSNY)

In my opinion, Naspers/Prosus/Tencent has turned from one of the JSE’s high valuation darlings into a contrarian bet with attractive valuations. I believe Tencent is a great asset, a combination of:

  1. a dominant scalable platform,
  2. a host of high margin cash generative assets, and
  3. the best VC firm in the world (Tencent made 253 investments into new companies in 2021).

China-related concerns justify a higher risk premium and discount rate, but I do not believe Tencent is facing an existential crisis, and I do not believe that its earnings ability has been diminished. If anything, Tencent is incentivized to under-report earnings, so they are likely earning more than it appears. At the Prosus level, the market is seemingly ignorant of the non- Tencent portfolio – a slumbering giant in emerging market food delivery, online classifieds, and payments.

Naspers is not in favor at the moment. With Tencent off -40% from recent highs and Naspers trading at -60% discount to its look-through SOTP, I believe we own a fantastic collection of technology businesses with a huge margin of safety embedded in the discount.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Single stock ideas excerpted from fund letters published by Seeking Alpha.
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