Why JPMorgan sees plenty of upside for Naspers
JPMorgan sees the Naspers share price surging 44% to R4,250 by the end of 2019 — a level that would value the internet group at a record high of R1.8-trillion.
The US bank said in a research report this week it had raised Naspers’s December 2019 price target from R4,000 after lifting its price target for Tencent from HK$345 to HK$375.
Naspers, which has lost ground after briefly surpassing the R4,000 mark in November 2017, closed at R2,950 on Thursday, a 0.8% decline on the day.
Its 31%-owned associate, Tencent, which is the world’s biggest gaming company and owner of the WeChat social network, closed 0.4% up at HK$329 in Hong Kong.
JPMorgan research analyst Alex Yao said earlier this week the US bank is more positive about the outlook for Tencent’s online gaming business in 2019, since Chinese regulators have resumed approvals for new games after halting the process months before.
The pause in gaming approvals contributed to a disappointing year for Tencent and Naspers investors in 2018. Tencent lost 24% through the year. Naspers retreated 16%, in the process weighing on the JSE’s all share index, which lost 11.4%.
The declines came amid a broader sell-off of technology stocks and fears that China’s growth is slowing, particularly as the country enters into a trade war with the US.
But analysts remain overwhelmingly bullish about both companies’ prospects. Of the 13 Naspers analysts tracked by Bloomberg, only one does not have a buy or overweight recommendation for the stock. And of the 54 analysts who cover Tencent, one has an underweight recommendation in place.
JPMorgan analysts, including SA-based JP Davids, said in a separate report this week that Naspers’s recent asset disposals, including its shares in India’s Flipkart, “reinvigorate the investment case”.
JPMorgan said it benchmarked Naspers’s valuation against its global peers and applied a 30% discount to the group’s associate assets, including its Tencent stake.
“We do not believe a discount for the consolidated assets is required given the company’s recent track record around return optimisation.”
Naspers CEO Bob van Dijk told Business Day in late November that the company had a healthy pipeline of potential deals and the cash-flush group would take advantage of declining asset prices. “It’s actually a really interesting time for us to invest,” van Dijk said.