* Naspers stake in Tencent dwarfs company market value
* Investors fretting about losses at e-commerce unit
* A spun off, listed Pay-tv unit could fetch up to 120
billion rand - analysts
By TJ Strydom
JOHANNESBURG, May 24 It was the investment that
transformed Naspers from a small-time South African
newspaper publisher into Africa's most valuable company and made
its long-serving director and chairman Koos Bekker a
Now, Naspers' 33 percent stake in Chinese internet company
Tencent is worth about $100 billion, or 20 percent
more than Naspers itself. It dwarfs other parts of the business,
including its loss-making e-commerce unit and African pay-TV.
Naspers has ploughed in around $3.6 billion since 2012 to
drive growth in e-commerce platforms such as e-classifieds,
online retail and auction sites and reduce its dependence on
Tencent and pay-TV, which thrives in South Africa but faces
So far it has little to show for its investments and some
investors say Bekker and chief executive Bob van Dijk must find
new ways to close the discount between Naspers' stock and
"What is clear to the external observer is that
developmental assets, largely e-commerce, are deteriorating in
their group contribution relative to Tencent and are cash
absorbing. Furthermore, it is difficult to see these assets
reaching sizeable international scale," said Mark Ingham, an
analyst Ingham Analytics
Founded in 1915, Naspers has transformed itself from an
apartheid-era newspaper publisher into a 1.2 trillion rand ($90
billion) multinational with private equity-style investments.
But it owes much of that valuation to the $33 million bet in
2001 to take a stake in Tencent, whose breakneck pace of growth
has catapulted it into China's biggest internet company with a
$334 billion market capitalisation.
As Naspers's stake in Tencent is worth more than Naspers
itself, this suggests the other assets are not reflected in the
"We need to see those classifieds businesses actually in
aggregate all swinging into profit, then you'll see the discount
narrowing," said a fund manager at one of Naspers biggest
shareholders, declining to be named because his firm does not
want to make its views public.
Naspers said it is working hard to narrow the discount.
"Some discount to the Naspers sum-of-the parts value is
unavoidable given our underlying investments in listed
entities," said Meloy Horn, head of investor relations.
"Our aim is to build great businesses besides Tencent...
We expect ...increased contributions from these fast growing
e-commerce operations to be recognised by investors and through
that process expect the discount to narrow over time."
Losses in Naspers' e-commerce division - which houses assets
that include OLX, the biggest classified sites in India and
Brazil - have been mounting every year since 2012.
The e-commerce unit's operating losses totalled nearly 1
billion rand in 2012, and have surged nearly six-fold to 5.6
billion rand in 2016.
"At the moment the (e-commerce division) as a whole is
loss-making and I think the market is struggling to look through
that," said Adrian Zetler, an analyst at Coronation Fund
Managers - the second biggest investor in Naspers.
Some investors were surprised when Naspers sold Allegro
Group - one of the world's biggest online sites with more than
20 million registered users - in October to an alliance of
investor funds: Cinven, Permira and Mid Europa partners.
"If leverage is the in-thing, why get rid of Allegro, one of
the better assets? " said Ingham.
Naspers said at the time it was selling the business to pay
To get decent returns from the money splashed on e-commerce
ventures, Naspers would have to generate at least $1 billion in
core profit, or earnings before interest, tax, depreciation and
amortisation, by 2021, Ingham said.
PAY-TV IN FOCUS
Naspers was founded in Stellenbosch, a close-knit town about
50 km east of Cape Town, as a publishing company called De
Nationale Pers (The National Press) to promote Afrikaner
Its newspapers later became mouthpieces of a party that
swept to power in 1948 on an openly racist campaign. The firm
has apologised for its role in South Africa's past.
Naspers began to pivot towards internet platforms at the end
of the millennium, using cash from flagship pay-TV business to
invest in e-commerce companies such as Mail.ru, which runs two
of Russia's three biggest social networking sites.
But mounting losses and the discount to its Tencent stake
have prompted some investors to ponder potential avenues for
Naspers to maximise value.
"They could sell or unbundle [the pay-TV unit] when the
business in the rest of Africa - outside South Africa -
recovers, maybe three years from now," said Philip Short, an
analyst at Old Mutual Equities, a top-20 investor in Naspers.
The pay-TV business provides content to more than 10 million
households in sub-Saharan Africa, bringing in around $600
million in annual core earnings, or EBITDA.
Analysts estimate that a spun off and separately listed
pay-TV business could fetch between 90 billion rand and 120
billion rand - at least 6.5 times its 2015 core earnings.
Horn declined comment on speculation that it was considering
selling MultiChoice Africa, the pay-TV division outside South
Africa that is grappling with high content costs, loss of
subscribers and unfavourable currency swings.
However, Horn said: "It is possible that, in time, we could
consider the listing of some our operations/investments if there
is a situation where they would benefit from market exposure,
independence, valuation, etc. We will evaluate such
opportunities if/when they are presented."
Byron Lotter, a fund manager at Vestact, an investor in the
company, said it would be a bad idea to hive off the pay-TV unit
because the company depends partly on it to pick up the check
for its e-commerce ventures.
"There may be some value unlocked but I don't think it is
worth the impatience," said Byron Lotter of Vestact in
Horn said Naspers would help investors better understand how
to value the stock by driving "an improved understanding of our
business through ongoing engagement with investors and more
transparent disclosure (to the extent that it does not impact
negatively on our competitive positioning)."
($1 = 13.2230 rand)
($1 = 7.7874 Hong Kong dollars)
(Additional reporting and writing by Tiisetso Motsoeneng;
editing by Anna Willard)