EDITORIAL: Naspers/Prosus delivering on its promises
Half-year results show group is starting to turn its e-commerce businesses, outside Tencent, to account
Markets were surprised, but not necessarily negative, when Bob van Dijk stood down rather suddenly as CEO of Naspers and its international unit Prosus in September.
Van Dijk had been there for a long time. The group had invested in some gems but also in some duds. It had spent an inordinate amount of time on complex corporate transactions and structures that attempted to reduce the discount at which the share was trading, but ultimately failed. Van Dijk stepped down just days after the group finally gave up on complexity and simplified its structure.
His interim replacement, Ervin Tu, has brought new energy and focus to the group. Its half-year results on Wednesday showed it is starting to deliver on its promise to turn its e-commerce businesses, outside Tencent, to account. Indeed, it has brought forward its target to turn the e-commerce portfolio to profit by six months, to the second half of its 2024 financial year. It doubled earnings thanks to much-reduced losses from that portfolio as well as improved profits at Chinese consumer internet giant Tencent.
Prosus’ 25% stake in Tencent has long been the proverbial tail wagging the dog for the group, and investors have long been sceptical of its ability to do other stuff successfully. By Wednesday, the Tencent stake was still worth $100bn against the $30bn valuation on the rest of the group’s e-commerce portfolio.
But the e-commerce businesses showed revenue growth of 16% at the half year, well ahead of peers in the industry, and they are headed, in aggregate, towards making a profit. In areas such as food delivery and classifieds the businesses the group controls are already in profit. It is looking at listing Pay U, the giant Delhi-based global payments platform, and there is potential too to list associates such as Indian food delivery platform Swiggy.
Listing or selling assets is one of the strategies the group will pursue as it takes concrete steps to highlight the value in its portfolio. It has already refined the portfolio over the past year or two and ultimately aspires to returns of 20% or more. It remains strongly focused on growth, whether by investing in existing businesses or in new acquisitions. It is constantly on the lookout for new investments in technology companies with high growth potential, including in areas such as artificial intelligence. It is keen too on high growth geographies such as India.
But Tu made it clear on Wednesday that while the group is not afraid of early-stage growth investments, it will look for those making money already and will not invest in so many loss-making enterprises.
That will be music to investors’ ears. But the sweetest music lately has been the group’s other big strategy to maximise value — what Tu calls “investing in ourselves” — through the open-ended share buyback it launched in June 2022.
The group estimates that has created $25bn of value, reducing the gap between the share price and net asset value by about 7%. But that discount is still at about 36% for the combined group. It is still the case that the share prices are driven as much if not more by what happens to the Tencent share price as by anything Prosus can do to deliver value from its operations and investments worldwide.
The results should at least prompt investors to take those more seriously and to look to the group for growth.
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