Investors weigh Naspers earnings against NAV

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

History has shown a strong correlation between the Naspers share price and Tencent’s fortunes and setbacks, and that operating results from the different operating divisions come second.

When management warned in a trading statement on Tuesday – curiously only 24 hours before the publication of the results for the six months to end September the next morning – that earnings would decline by 81% to 88%, the Naspers share price dropped by only 3.4%.

Imagine the damage if Naspers did not have Tencent’s asset value for shareholders to focus on.

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The formal income statement shows that earnings were some 84% lower in the six months compared to the first half of the previous financial year, although Naspers succeeded in growing revenues from its web of online consumer-related businesses.

Notes to the financial statements disclose that revenues earned by the operations that Naspers runs itself increased 14% to $3.7 billion, but losses increased compared to a year ago. The adjusted earnings before interest, tax, depreciation and amortisation figure showed increasing losses.

The continued businesses that Naspers manages itself chalked up losses of $480 million in the half year to end September compared to $275 million a year ago.

Headline earnings per share are given as 24 US cents per share – a decline of 93% compared to the corresponding figure of $3.68 per share for the first half of the previous financial year.

Group trading profit declined by 38% to $1.4 billion, reflecting a lower contribution from Tencent and investment in e-commerce extensions. Referring to core headline earnings, management says this declined by 51% to $372 million.

Management’s view

Nevertheless, management says Naspers has announced a “solid set of results”.

“Despite a turbulent period during which industry growth expectations and valuations came under significant pressure, we have increased e-commerce revenues and continued organic investment into those segments where we see the highest growth potential,” says Bob van Dijk, chief executive of Naspers and Prosus, in his commentary to the results.

“This investment is focused on building and extending our offering within core products to meet local market needs, notably within autos at OLX, convenience delivery in food and credit at PayU.”

Management says the growth in the important food delivery businesses was “robust”.

“Focus was on improved profitability in the core restaurant food delivery businesses, as well as controlled investment in growth extensions, such as quick commerce and grocery initiatives.”

An attempt to pacify

While putting a positive spin on the results, Van Dijk and CFO Basil Sgourdos also made some comments that can be seen as an attempt to pacify shareholders that the group’s host of new investments are close to turning the corner and will start to deliver returns soon.

“Organic investment levels peaked during the period, and together with increased scale and actively managing our cost base, our business is well positioned for improvements in profitability and cash flow generation. It is our ambition for our consolidated e-commerce portfolio to become profitable in the first half of the 2025 financial year.

“We have shown strong execution and operational growth through a volatile and challenging time. To further scale our ecommerce businesses, we have made significant organic investment in OLX Autos, credit, convenience delivery and edtech, which will drive sustainable long-term value creation for the group,” says Van Dijk.

Sgourdos adds: “Revenue grew strongly across our segments, despite the significant foreign currency headwinds in emerging markets and a lower contribution from Tencent.”

The income statement shows that Naspers’s share of equity-accounted earnings (mostly Tencent) fell to only $1.06 billion in the six months under review compared to a hefty contribution of $4.07 billion in the first half of the 2022 year.

Even this lower contribution was offset by accounting for Tencent’s lower valuation in the profit and loss statement according to accounting principles.

Impairment of equity-accounted investments came to nearly $1.46 billion, according to the income statement.

Still, Sgourdos says the e-commerce businesses are all profitable, or at break-even at the core.

“We have accelerated efforts to drive profitable growth. We expect this half year to mark our peak investment spend, with profitability and cash flow generation improving from here on. We expect to be profitable on aggregate in the first half of financial 2025.”

Share buyback

Meanwhile, Naspers and Prosus are adding serious value by way of their share buyback programme.

Prosus is selling down its stake in Tencent and purchasing Prosus and Naspers shares on the open market to unlock the big 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 open-ended buyback of Prosus and Naspers shares is unlocking real value. We expect the benefits of the programme to compound over time,” says Sgourdos.

“Looking ahead, we will work towards simplifying the group’s structure and to crystallise value from our portfolio.”

Naspers and Prosus share prices

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