Alphyn Capital - Naspers: Rout In Internet Company Valuations

Apr. 27, 2022 12:34 AM ETNaspers Limited (NAPRF), NPSNYDELHY, DLVHF, JD, MLRYY, SE, TCEHY, TCTZF4 Comments

Summary

  • Naspers shares have come under a lot of pressure lately.
  • The company still has solid fundamentals and attractive opportunities.
  • Naspers management has suggested it will take further steps to simplify its corporate structure.

Global connection

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The following segment was excerpted from this fund letter.


Naspers (OTCPK:NPSNY, OTCPK:NAPRF)

Naspers shares have come under a lot of pressure lately. The rout in internet company valuations has directly impacted its portfolio of companies. For example, Delivery Hero's (OTCPK:DELHY, OTCPK:DLVHF) stock declined 61% in the quarter. Additionally, Naspers decoupled from Avito in Russia and had to write down $700m for its holding in VK Group (OTC:MLRYY) (formerly Mail.ru). Meanwhile, Tencent (OTCPK:TCEHY) continues to be impacted by regulatory fears in China.

While regulation remains a critical risk, a meeting of China's top financial policy committee led by Vice Premier Liu He1 called on regulators to "actively introduce policies that benefit markets" and indicated the worst of regulations might be over. Regulations have undeniably curtailed some of Tencent's growth, especially in its advertising and games businesses. Even so, the company still has solid fundamentals and attractive opportunities. For example, in gaming, Tencent has a network of 30 international studios with a global pipeline of 40+ games growing at 25% per year, not targeted by regulation in China. In business services, Tencent is investing in internet- as-a-service and platform-as-a-service products to capture the ample cloud opportunity in China.

Tencent's core business trades at 16x forward P/E, and the risks are priced in for what remains a very high-quality business. It is encouraging that management seems focused on capital allocation. Tencent has built a large and successful investment business, buying companies when they are private and seeing many of them progress to IPO. Tencent recently spun-out shares in JD.com (JD), divested some of its stake in Sea Ltd. (SE) and indicated more could come.2 Meanwhile, Naspers management is under increasing pressure to reduce the "unacceptable" ~$86bn discount and suggested it will take further steps to simplify its corporate structure.


Footnotes

1 China Makes Strong Vow to Ease Crackdowns After Market Turmoil

2 2021 Q4 earnings call


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

This article was written by

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