Naspers: Large Tencent Shareholder at Sum-of-the-Parts Discount

Jean Pierre Verster of Fairtree Capital presented his in-depth investment thesis on Naspers (South Africa: NPN) at Best Ideas 2018.

Naspers is a global internet and entertainment group founded in South Africa in 1915, and one of the largest technology investors in the world. The principal asset is a ~33% stake in Tencent, a leading Chinese technology conglomerate, which itself is one of the largest public companies in the world. The value of Naspers’ investment in Tencent represents more than its own market capitalization and almost 90% of a sum-of-the-parts (SOTP) valuation.

The discount to intrinsic value at which Naspers trades is comparable to SoftBank’s SOTP discount and to the discount at which Yahoo traded before the Altaba value-unlocking transaction. Importantly, Naspers has almost no tax leakage in the theoretical case of a sale of the Tencent stake. Naspers has generated strong returns from operations excluding Tencent, notwithstanding those operations only recently emerging from the investment phase of their “J-curve” earnings profile. The performance of those operations has, however, been dwarfed by Tencent’s ability to compound value at a high rate over the long term.

While there are technical and structural reasons for a discount to persist, the discount recently reached extreme levels, and Naspers’ management is incentivized to narrow it.

About the instructor:

Jean Pierre Verster is a Portfolio Manager at Fairtree Capital in South Africa, where he manages the ‘Protea’ range of Equity Long/Short hedge funds. Mr. Verster joined the firm in 2016. Prior to this, he was an Analyst at 36ONE Asset Management for 6 years, as part of a team which managed the largest single hedge fund in the country. Previously, Mr. Verster had been a Portfolio Manager and Analyst at Melville Douglas Investment Management and fulfilled various roles at the Standard Bank Group, including as a credit research analyst in its Global Markets Research division, a financial manager in the insurance services division and an internal auditor in the retail banking division. Since 2015, Mr. Verster is also an Independent Non-Executive Director and Chairman of the Audit Committee of Capitec Bank, the fourth largest bank in South Africa by market capitalization. He is a Chartered Accountant and holds the CFA and CAIA designations.

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