EDITORIAL: Van Dijk alleviates Naspers headache
Newly listed Prosus’s valuation is still 22% less than its net asset value, but that’s in line with its peers
It is turning out to be a good year so far for Bob van Dijk, the Dutchman running the show at Africa’s most valuable company, Naspers.
He probably opened a bottle of champagne last week, when Prosus, Naspers’s international e-commerce business, made a sparkling stock market debut in Amsterdam. In the process it went a long way to solving his biggest headache: a hefty valuation gap to Naspers’s component parts.
Van Dijk, a rare appointment in 2014 of an outsider to Naspers’s top job, inherited an emerging-market internet powerhouse thanks to the company’s one-third stake in Tencent — whose breakneck ascent kept shareholders happy with an uninterrupted flow of dividends and made chair Koos Bekker’s $32m (about R570m in today’s money) bet in the then little known Chinese upstart in 2001 one of most successful punts in corporate history.
But when the stake — now valued at an equivalent of R1.9-trillion — began eclipsing Naspers’s own market value and underlying assets, investors started urging Van Dijk to find ways to narrow it. One of them was Albert Saporta of Geneva, Switzerland, who tried and failed to put pressure on Van Dijk to hive off the Tencent holding to shareholders as a way to get rid of the value shortfall.
Worsened by investor scepticism over the lack of a clear path to profitability for the rest of the company’s e-commerce ventures, the discount at times widened to as much as 50%.
For a few years, Naspers largely dismissed suggestions to sell or spin off and separately list the Tencent stake because at this company only two shareholders really call the shots: Keerom and Naspers Beleggings. The duo control 53% of the votes through their ownership of more than 900,000 A-class stocks, which carry 1,000 times more votes per share than listed N-class shares.
This control structure — which is down to the company’s roots as a newspaper publisher and was meant to deter outsiders from dictating editorial policy — is being replicated at Prosus.
It was only when the valuation mismatch was exacerbated in the past two years by Naspers’s oversized weighting on the JSE that Van Dijk, who had been telling investors that the gap would be closed as and when the company’s other e-commerce ventures turned profitable, was given the go-ahead to take meaningful steps to resolve the issue.
The listing of about a quarter of Prosus, which houses Naspers’s global e-commerce assets, including its holding in Tencent, is the biggest step yet in tackling the long-standing discount and so far it is doing the trick.
It is a well-calculated plan as it gives European institutional investors, starved of big technology stocks, their biggest consumer internet firm and Euronext’s third-largest company after oil titan Royal Dutch Shell and consumer foods maker Unilever.
As of Thursday, Prosus’s market cap of R1.8-trillion is just over 6% less than its stake in Tencent. Given that Naspers is worth roughly 10% less than the value of its stake in Naspers, Van Dijk has dramatically slashed the gap in half compared with about a third earlier this year.
Prosus’s valuation is still about 22% less than its net asset value of about $150bn (the total value of its assets minus liabilities), according to some analysts. Many of them find it difficult to assess the true underlying value of the mix of assets, including stakes in publicly traded ventures like India’s travel booking firm MakeMyTrip and several unlisted platforms like classified site Letgo.
But that’s more or less in line with a discount range of between 15% and 20% applied to technology investment holding companies.
The deal adds to a number of steps Van Dijk has taken over the past few months to tackle the problem. He has spun off and separately listed pay-TV unit MultiChoice, handing shareholders a company valued at more than R50bn. And he can hold up online classifieds as a division within Prosus that is starting to make money after turning profitable for the first time in 2018.
Though the listing of Prosus does not address concerns about its off-putting control structure or give enough evidence that the new entity will not squander the remaining $6bn Tencent windfall, it has given Van Dijk and shareholders a reason to smile more.