Naspers jumps nearly 23% on results and share buyback proposal

Naspers shares jumped 15% in early morning trade after the Naspers/Prosus group announced its results early Monday morning. Prosus opened nearly 14% higher than Friday’s close.

That was only the beginning of a special day.

Naspers extended its gains to close the day 22.79% up, while Prosus ended the day up 18.9% in what one can describe as a vote of confidence in management’s announcement that the companies will steadily sell down their stake in Tencent and return the proceeds to shareholders by way of buying back Naspers and Prosus shares.

Not only did the share prices of the two companies increase sharply, but record volumes traded on the JSE on Monday.

More than 3.5 million Naspers shares to the value of more than R8.1 billion traded, compared to average daily trade of less than one million shares worth about R1.5 billion.

Investors also traded 3.5 million Prosus shares, worth nearly R3.7 billion. Usually around one million Prosus shares would change hands on a typical trading day.

Results

Naspers’s results also seemed to have pleased investors. Although a trading update last week let the cat out of the bag as far as the figures are concerned, the full results disclosed that underlying operations performed well during the ongoing difficult business environment.

Naspers delivered strong revenue growth with operations posting a profit when looking at core earnings, a figure management presents to measure the underlying operational progress of its portfolio of new and growing e-commerce investments.

“Building on the prior year’s performance, the group’s e-commerce portfolio delivered revenue growth of 49% to $10.7 billion,” notes management in their commentary to the results.

“This growth resulted from strong operational execution and momentum in all e-commerce segments, despite the turbulent environment.

“While the segments demonstrated core profitability, overall trading profit was lower than last year, reflecting investment in scaling the large adjacent opportunities in the segments, which serve significant consumer needs.”

Group revenue increased 24% to $36.7 billion in the financial year to end-March 2022.

This enabled Naspers to invest another $6.2 billion into its portfolio of online retail, advertising and food delivery operations, to accelerate growth and acquire more businesses as it seeks to grow towards sustainable profitability. Volumes are key in these businesses.

“Accordingly, overall group trading profit reduced by 6% to $5 billion,” says management, noting that core headline earnings declined 16% to $2.1 billion.

This figure largely reflects the lower contribution from its big shareholding in Tencent after Naspers sold 2% of its Tencent stake, as well as higher finance costs.

The income statement shows that interest paid on debt increased from $268 million in the previous financial year to $411 million in the last. However, this pales in significance to gains and income from the disposal of the Tencent shares and the shares in JD.com that Naspers/Prosus received as a special dividend from Tencent during the last financial year.

Liquidity

The disposal of the JD.com shares raised approximately $3.7 billion, with management saying that this enhanced the group’s credit profile and liquidity.

Basil Sgourdos, CFO of Prosus and Naspers, says the operating performance should be seen against a backdrop of the good performance in the previous financial year – meaning the growth came off a relatively high base – and significant global volatility.

“The macro-economic and severe geopolitical challenges in the second half of the year have presented significant headwinds. But our operations remain strong, and with improved profitability at the core, we are investing to scale into adjacent opportunities across our segments,” says Sgourdos.

“We believe that growth from the auto transaction businesses in classifieds, broader on-demand delivery in food delivery, credit and digital banking in the payments & fintech segment and new investments in edtech will create significant value for the group over time.”

Sgourdos says the group, as part of its strategy to optimise capital allocation, purchased $6.2 billion Naspers shares, which enhanced the net asset value (NAV) per share.

“Our solid financial footing positions us well for the challenging operating environment and the execution of our strategy,” he says.

Share repurchase

Naspers and Prosus announced an “open-ended share repurchase programme” of Naspers and Prosus shares.

It explains that it will be funded by regularly selling small numbers of Tencent shares and is designed to efficiently unlock immediate value for shareholders and increase NAV per share over time.

In addition to selling expensive Tencent shares and using the proceeds to buy cheap Naspers shares, repurchased shares will be cancelled and the reduction in the number of issued shares will increase NAV per share.

“The programme will be active as long as the discount to NAV is at elevated levels,” says Naspers.

CEO Bob van Dijk says that looking ahead, the group will continue its disciplined investment to build bigger and more valuable businesses.

“These businesses have good traction with consumers and high potential to generate sustainable returns over the long term. We aim to bring the ecommerce portfolio to profitability in aggregate and to build significant additional value,” says Van Dijk.

Walid Koudmani, chief market analyst at brokerage XTB, says Prosus and Naspers delivered strong revenue growth with profitable core operations, while the share repurchase programme is bound to support their share prices going forward.

“These results paint an optimistic picture for investors who may be reassured that despite a difficult overall economic environment, the company remains resilient with its plans to continue expanding.”

JSE

The strong showing by Naspers and Prosus on the JSE helped the Top 40 index gain 2.5%, or more than 1 500 points to above 61 500 points, with only a little help from a handful of other shares.

This is only the second bounce since share prices started to slide at the beginning of February. At the time, the Top 40 was sitting at just below 70 000 points.

Click here for a pdf of the above.

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