Naspers, proudly global

“Naspers is an incredible story and a global business South Africa should be truly proud of. Not all bad news coming from the Southern tip of Africa. We continue to buy at these levels.”

To market to market to buy a fat pig. As many people expected after the call for a referendum by the Greek government, Greece missed the deadline to pay back 1.6 billion Euros to the IMF. This makes them the first developed nation to miss a payment. The way I understand it, they are now in arrears which means they can’t receive funding from the IMF until they pay back what is outstanding. If a deal is reached in the near future, part of the fresh funding will go to paying off the debt that is in areas and all will be forgotten. Sort of.

Another consideration if they decide to leave the EU is that it won’t just happen over night. Given that the treaty between all the countries does not have provisions for leaving, there will be many meetings on how to implement it. Given that it will take a long time to implement, what will happen with Greek everyday life? I would imagine they will live in a state of uncertainty. No Investment in new businesses or spend on upgrading current investments and anything else that would require a certain degree of future confidence. The result would be an even further deterioration of their GDP. We would probably also see a continued run of Greek banks because the citizens think the Greek banks could go under and would rather have Euros instead of the inevitable Drachma. All the uncertainty is hurting the man on the street, lets hope that there is some decisive action from politicians and clarity if the referendum does go ahead this weekend.

Company Corner

Facebook have opened a Johannesburg office – Facebook opens Johannesburg office. We have clients who use Facebook to advertise and they have seen the direct impact of having a targeted advertising campaign. Having an office in South Africa will allow Facebook to reach out to more advertisers. A stat that is good for MTN and Vodacom is that 80% of African users access Facebook via mobile. Facebook is data intensive and has an ability to suck you in, great for the revenues of those companies.

Big news this morning, Government selling its Vodacom stake to fund Eskom. The stock of Vodacom is up around 4% on the news. Is this the private sector saying they would rather own a company where government doesn’t have a say or is it because there were fears that government were going to sell their stake on the open market?

On Monday evening we received results for the year ending 31 March from our preferred technology stock, Naspers. And what an incredible business this is, with moving parts all over the world in what we believe are the right sectors. The report splits the business into 3 segments, Internet, Video and Print. If you are interested in this company I strongly suggest you read the results titled Naspers Provisional Report.

I have taken a screen grab of the segmental review. Don’t be confused by the equity adjustments. They account for the entire Tencent Revenue and EBITDA and then subtract the part of the business it doesn’t own in a different line entry. As you can see, Tencent is a well established cash cow already, Naspers’ heavy investing in other businesses has impacted earnings. More on that later.

Core headline earnings grew 30% to R11.2bn, that is the important metric you need to take note of. I’m not even going to attempt to value the business on earnings. This is a sum of the parts business. Lets look at each division now.

Internet. This includes their stake in Tencent and as well as their ecommerce businesses. As we well know, Tencent has been flying. The shift to mobile has been huge and Tencent have been able to monetise this. 85% of internet use in China is now through mobile. Revenues grew 31% and profits increased 43%. The Naspers stake in Tencent is worth R765bn. That is determined by the collective and efficient market in Hong Kong. is listed in the UK. It is a Russian site (similar to Google) so the currency had a negative impact. Sales were flat but on a constant currency basis they grew by 15%. Naspers stake in this business is worth R16bn.

The ecommerce business is very exciting but sucking up large amounts of cash. They spent R8bn on developments which resulted in a balance sheet loss of R6.1bn. They have some incredible assets with leading ecommerce sites and online classifieds in India, Brazil, Indonesia, Turkey, South Africa and many others. Their dominant online classified OLX served 240 million users a month globally. It’s hard to value this business because it makes no money yet. But neither does Amazon at this stage. Amazon trades on about 2 x Revenues. If that is the case for Naspers then this business is worth R55bn. That’s conservative in my view.

Video Entertainment. This is the new name given to Pay TV which is an industry evolving fast. This is a solid business. It grew revenues by 17% but profits contracted by 6% to R8bn because of development spend. Locally and throughout the continent they have had very little competition. Now we are getting international competition from the likes of Netflix, Amazon, Apple and Google. Multichoice have created streaming options but they will have to be at the top of their game in terms of content. At least they know what they are facing and they are dealing with it. There is even a cool Mnet app now where you can tape shows on your PVR using your phone from anywhere in the world. I’d give this a conservative valuation of 15 times earnings, R120bn.

Print Media. Is this even worth talking about? I guess it still has value. But even Media 24 are exploring more online alternatives. Profits here of R314 million, lets value the business at R3bn (they did just realise R1.1bn from listing a portion of this business).

If we add all of this up we get to R959 billion. The current market cap is R794 billion. Not only are you getting a discount to the sum of the parts valuation but you are also getting the potential future growth of this incredible business which is being very well steered by Bob van Dijk and Koos Bekker. I am confident that these guys know the trends of the fast moving technology sector and they will continue to place themselves at the forefront, especially in large populous developing markets. Naspers is an incredible story and a global business South Africa should be truly proud of. Not all bad news coming from the Southern tip of Africa. We continue to buy at these levels.

Linkfest, lap it up

This is a great example of thinking out of the box. There is a very slim chance that crowd funding will save Greece but why not try it anyway – Greek Bailout Fund. This shoe salesman has raised over 500 000 euros for the Greek bailout fund. The money that people have committed doesn’t actually come off their credit cards until the 1.6 billion Euro target has been raised, so not very likely.

Bitcoin has fallen off most people’s radars and will probably never have a reason to return to them. This article highlights why Bitcoin is unsustainable. In simple terms it is just too expensive, for a currency to work you want something that costs very little to create and transfer which is what we have with our current fiat money. “a single Bitcoin transaction uses roughly enough electricity to power 1.57 American households for a day.” “That makes Bitcoin about 5,033 times more energy intensive, per transaction, than VISA”

Last night we had a leap second, I must say I didn’t notice that my alarm went off a second later than normal – What’s the deal with leap seconds?. It might not sound like a big deal but it is a huge deal for computers and given how important computers are in our lives, this could be a big thing. I haven’t noticed any webpages being down or a problem on the JSE or NYSE, so I would say a job well done by the IT crews all over.

I have seen a couple posts pointing out that Greece forgave German debt in 1953. The basis of the post is to say that Germany shouldn’t be so hard nosed about the Greek debt. After a bit of Googling I found this piece, you can already tell what the conclusion is but it gives some more clarity around the 1953 debt forgiveness. Read the article and make your own mind up – Germany Deserved Debt Relief, Greece Doesn’t

Home again, home again, jiggety-jog. After our positive trade data yesterday the Rand strengthen against the dollar, currently sitting around the R/$ 12.15 level. The mining stocks are under pressure again today, Kumba is down 4.4% at the moment. The rest of the market is up, Mediclinic currently up 1.7% and Naspers still in the green after its strong 3% run yesterday. I have just seen breaking news flash across our TV screens saying that Greece will accept the creditors conditions with a couple of changes. We can chat about it tomorrow once things have settled and it is clear what both sides feel about Greece’s proposal.

Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.

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