Picture: BLOOMBERG
Picture: BLOOMBERG

Naspers opened firmer on the JSE on Thursday after results from Chinese internet company Tencent, of which Naspers owns about a third, beat analyst expectations.

Naspers was up 0.62% at R3,680, bringing gains for the year so far to 82.7%. It rose 1.95% on Wednesday to a record R3,739.83.

Tencent was up 2.5% in Hong Kong trade on Thursday, after falling on Wednesday.

Tencent’s results were released after the market closed on Wednesday, and all Asian markets ended the day sharply lower.

Tencent reported net profit rose nearly 70% in the quarter to end-September from a year earlier, with strong growth at its mobile-gaming and digital-content divisions.

Earnings for the quarter rose to more than 18-billion yuan ($2.7bn, or about R38bn) from about 10.6-billion yuan a year earlier. Analysts polled by S&P Global Market Intelligence expected a profit of 15.7-billion yuan, Dow Jones Newswires reported.

Tencent has doubled its market value so far this year.

Naspers’s high valuation inevitably raises questions about the sustainability of its growth, but analysts remain relatively optimistic.

It is trading at a demanding price:earnings ratio of 127, meaning Naspers will have to deliver the same earnings growth for the next 127 years to justify the present market valuation.

Old Mutual Multi-Managers analyst Izak Odendaal said Tencent, and other Chinese tech companies such as Alibaba, were generating surging earnings growth with positive cash flows.

“This is very different to most companies during the 1990s dotcom bubble,” he said.

Naspers’s huge market cap — at R1.575-trillion — has created problems for many active asset managers, since it is virtually impossible to be overweight even on a positive outlook.

Index trackers have therefore beaten active equity managers this year, but were at risk of a huge exposure to a single share, Odendaal said.

Some shareholders have called for the unbundling of Tencent as Naspers’s overall market value at present is smaller than its stake in Tencent should reflect.

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