BROKERS’ NOTES: Buy Prosus, sell listed property counters

Buy technology conglomerate Prosus for its main asset, Tencent, which makes up 90% of the group’s value. Tencent is a leading technology company in China with revenue streams including gaming, platforms (WeChat), payments, cloud services and online advertising. Earnings growth remains robust, with year-on-year operating profit growing above 20%. In addition, Tencent is increasing its dividend payout and share buybacks to increase shareholder returns. Tencent’s earnings growth is expected to continue despite the weaker Chinese economy. The superior earnings growth and increasing revenue outside of China remain underappreciated by the market, creating the opportunity to buy.

Sell: South African listed property

South African listed property counters have had a steep share price rally this year. In fact, last week the FM asked whether the real estate investment trust rally was over — pointing out that popular counters such as Attacq (more than 50%); Hyprop, Fortress and Emira (all more than 40%); and Vukile (38%) had all registered stellar year-to-date gains to end-October. Overall, the sector is up in aggregate 26% year to date and has materially rerated. Looking ahead, we expect returns to be more muted and in line with nominal GDP plus dividend yield. There are better returns to be earned owning South African retailers and local banks.