The logo of Tencent is displayed at a news conference in Hong Kong, China. File photo: REUTERS
The logo of Tencent is displayed at a news conference in Hong Kong, China. File photo: REUTERS

Hong Kong — Great stocks are like thoroughbreds: keep the best horse hidden for too long and people discount the value of your stable.

Something similar seems to have happened with Naspers and its star asset, Tencent Holdings. And it helps to explain why Naspers decided to shed some of its stake in the Chinese social media giant.

On Thursday, Naspers said it would sell as much as 190-million Tencent shares, equal to 2% of Tencent’s total issued share capital, cutting its holdings to 31.2%. It’s promised not to sell more shares in the next three years.

The sale was Naspers’s first disposal since it had the smarts to invest in Tencent as far back as in 2001, when the Chinese firm was an obscure internet company. Since then, Tencent — operator of the popular WeChat messaging service — has soared in value. As of Thursday’s close, Naspers’s 33% stake in Tencent alone was worth more than $175bn, eclipsing Naspers’s own entire market cap of $121bn.

In other words, investors essentially value Naspers’s Tencent stake at a discount and its other holdings at less than zero. By selling its stake, Naspers is telling the market that it doesn’t deserve this steep conglomerate discount.

Shares of Naspers tumbled as much as 9.5% after news of the sale, the most since 2008, perhaps because of the company’s promise that more disposals would not be in the offing. As Gadfly has argued in the past, it will be difficult for Naspers to close its valuation gap, in part because of its size relative to its home market in SA. But at least it is now trying.

The news was also painful for Tencent, already reeling from a 5% drop in its stock on Thursday after disappointing earnings and the spectre of shrinking margins. But the sale doesn’t necessarily mean Naspers is losing faith. After all, Tencent founder Pony Ma sold stakes in the company several times in 2015, just before the company’s shares took off in 2016.

Tencent may be losing some steam, but it still has plenty of fight left. By selling a tiny piece of its stake, Naspers is hardly switching horses.

This column does not necessarily reflect the opinion of Bloomberg and its owners.

Bloomberg

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