Naspers Stock Whipsaws as Analysts Digest Sale of Tencent Shares

(Bloomberg) -- Naspers Ltd. shares pared losses before resuming their slump Thursday as analysts and traders digested news that the South African media company is selling a $10.6 billion slice of its stake in Tencent Holdings Ltd.

The sale will cut Naspers’ stake in Asia’s most-valuable company to 31.2 percent from 33.2 percent, a move that frees up cash, said Michele Santangelo, money manager at Independent Securities. The decision may please some investors who have criticized the Cape Town-based company because it trades at a discount of about $50 billion to the value of its Tencent shares. Naspers could have got their timing better, said Peter Takaendesa of Mergence Investment Managers.

Naspers dropped in early Johannesburg trading after Tencent warned that it will sacrifice short-term margins as it pursues growth. The stock pared its decline as the sale of as many as 190 million Tencent shares was announced, before falling as much as 9.6 percent, the most intraday since October 2008.

Naspers Stock Whipsaws as Analysts Digest Sale of Tencent Shares

Here’s what traders and analysts had to say about the sale:

Michele Santangelo, Independent Securities

  • “It does create quite a lot of free cash for Naspers to deploy in some of their other businesses, which will probably be more capital expenditure into their online businesses and possibly their delivery businesses. It frees up quite a bit of cash at a decent time that they can use for investment or to prop up some of their other investment.”
  • “To further diversify would probably be beneficial, but they’ve got a good asset there. You don’t really want to sell it down too much unless you really see opportunity elsewhere.”

Michael Treherne, Vestact

  • “At a 40 percent discount to NAV, it was only a matter of time until someone does something. So I suppose them selling some of their stake, it makes sense for them to go down this road.”
  • The Tencent stake “divides investors: some people have called for them to divest from it and get the cash and do something else with it, while others say ‘it’s such a great asset why would you want to get rid of it?”’
  • “It depends on how long term you’re holding it, but at a 40 percent discount, Naspers is ripe for a bit of a shake up.”
  • “Hopefully this will be a positive sign to the market and then that will close the NAV gap just by their show of intent.”

Ron Klipin, Cratos Capital

  • “This is a positive move from the company for investors. There has been a massive and increasing discount in terms of its Tencent stake and the underlying rump. By doing this, Naspers will be able to reduce its borrowings, grow its own portfolio and slowly start reducing that underlying discount. Investors have been very vocal about addressing this discount and how to do it, and in the past Naspers would not respond to investor concerns. Perhaps they are in a process of change.”

Peter Takaendesa, Mergence Investment Managers

  • “They spend about a billion dollars on development spend per year on their new ventures and e-commerce and all that. They have, in terms of acquiring other businesses, to spend another billion or so. So this helps from a Naspers group balancing point of view, from a liquidity point of view, because they have a big chunk of their balance sheet that relates to Tencent, but they only get dividends.”
  • “This provides the liquidity they require for the midterm, and in fact if they don’t do too much buying, there’s a chance they could use part of the 10 billion to do a Naspers share buyback.”
  • “They could have done this at a time after Tencent reported its third-quarter results, when the Tencent share price was much stronger. The timing could have been much better”

David Shapiro, deputy chairman at Sasfin Securities

  • “The market’s confused about what this means, undecided what strategy to apply to this -- it’s the only way in South Africa that you can get exposure to what I call ‘modern tech stocks.’”
  • “You’ve had a massive outperformance because of the rand, but there’s still a massive discount, whichever way you look at it, there’s still a huge gap they are trying to close. But I can’t see that gap closing.”

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