Investors compare Naspers’ earnings to NAV

Naspers’ latest interim results show once again that investors value and invest in Naspers for one reason only – to benefit from the value of the group’s stake in Tencent.

History has shown a strong correlation between Naspers’ share price and Tencent’s fortunes and failures, with the operating results of its various operating divisions second to none.

When management warned in a trading statement on Tuesday – interestingly, just 24 hours before the day after the publication of its six-month results – that earnings would fall 81% to 88% to the end of September, Naspers’ share price fell just 3.4. %.

Imagine the damage if Naspers didn’t have the asset value of Tencent for shareholders to focus on.

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The official earnings report shows that although Naspers managed to increase revenues from its online consumer-related business network, profits in the six months were down 84% compared to the first half of the previous financial year.

Notes to the financial statements revealed that revenue from Naspers’ self-managed operations rose 14% to $3.7 billion, but losses widened from a year earlier. The adjusted earnings before interest, tax, depreciation and amortization figure showed widening losses.

Naspers’ own ongoing businesses posted a loss of $480 million in the half year to the end of September, compared with $275 million a year earlier.

Headline earnings per share were reported at 24 cents per share – a 93% decline from the corresponding figure of $3.68 per share in the first half of the previous fiscal year.

Group trading profit fell 38% to $1.4 billion, reflecting a lower contribution from Tencent and investment in e-commerce expansion. Turning to headline revenue, management said it fell 51% to $372 million.

Management’s vision

Despite this, management said Naspers announced a “solid set of results”.

“Despite a turbulent period in which industry growth expectations and valuations remain under significant pressure, we have grown e-commerce revenues and continued to invest organically in the segments where we see the highest growth potential,” said Naspers CEO Bob van Dijk. Prosus, in his comments on the results.

“This investment is aimed at building and expanding our offerings across core products to meet local market needs, particularly cars on OLX, convenient food delivery and credit offering on PayU.”

Management says growth in key food supply businesses has been “healthy”.

“The focus is on improved profitability in core restaurant food delivery businesses, as well as controlled investment to expand growth such as fast-food and grocery initiatives.”

An attempt at pacification

While positive about the results, Van Dijk and CFO Basil Sgourdos also made some comments that could be seen as an attempt to reassure shareholders that the group’s new investments are close to turning around and will soon start producing returns.

“Organic investment levels peaked during the period and by actively managing our growing scale and cost base, our business is well positioned to generate profitability and cash flow. It is our ambition to have our consolidated e-commerce portfolio profitable in the first half of FY2025.

“We have demonstrated strong execution and operational growth during a volatile and challenging time. To further expand our e-commerce businesses, we have made significant organic investment in OLX Autos, credit, convenient delivery and edtech, which will drive sustainable long-term value creation for the group,” said Van Dijk.

Sgourdos adds: “Despite significant foreign exchange headwinds from emerging markets and a lower contribution from Tencent, our revenue grew strongly across our segments.”

The earnings report showed that Naspers’ share of equity-adjusted earnings (mainly Tencent) fell to just $1.06 billion in the six months under review, compared with a larger contribution of $4.07 billion in the first half of 2022.

Even this lower contribution was compensated by taking into account the lower valuation of Tencent in the profit and loss account according to accounting principles.

According to the earnings report, the impairment of equity investments was approximately $1.46 billion.

Still, Sgourdos says, not all e-commerce businesses are profitable or break even.

“We have accelerated efforts to ensure profitable growth. We expect this half year to mark our highest investment spending, with profitability and cash flow improving thereafter. We expect to be fully profitable in the first half of fiscal year 2025.”

Share the buyback

Meanwhile, Naspers and Prosus are adding significant value through their share buyback program.

Prosus is selling down its stake in Tencent and buying Prosus and Naspers shares in the open market to unlock large discounts between the market prices of Naspers and Prosus shares relative to the net asset value of the companies’ stake in Tencent.

“The group’s public buyback of Prosus and Naspers shares unlocks real value. We expect the program’s benefits to grow over time,” says Sgourdos.

“Looking to the future, we will work to simplify the group’s structure and crystallize value from our portfolio.”

Naspers and Prosus share prices