Multiple Choices for Naspers Shareholders


Market Scorecard

The big news out just before the market closed yesterday, is that Naspers plans to spin off its Multichoice division. The new listing of Multichoice is expected to take place early next year, where, as a Naspers shareholder you will receive these new shares. Based on some very rough calculations, I estimate that for each Naspers share, you will get around R150 in Multichoice value.

The Naspers SENS announcement came out at 16:49, which is just before the market goes into closing auction, none the less Naspers went from being down 3% to close up by 0.7%. Tencent is currently down 2% this morning in Hong Kong, so it will be interesting to see how Naspers opens now that market participants have had time to digest the news.

As expected, the US has imposed tariffs on a further $200 billion worth of Chinese imports, which China has vowed to return in kind. I saw a headline saying that the Apple watch managed to avoid the tariffs, good news for Apple and the consumer.

In a tweet last night, Trump finished it off with ‘If countries will not make fair deals with us, they will be “Tariffed!”‘. I can just picture him sitting with his advisors saying, ‘Did you get it guys? It’s like terrified but I mixed in the word tariff. So clever!’ Anyway, it resulted in the first red day after 5-days of green for the S&P 500. The saving grace from the current situation is that the US is currently growing at 4% and China is growing at 6%, which means at some level their consumers can absorb the tariffs without too much damage; at least in the short-term.

Yesterday the JSE All-share closed down 0.50%, the S&P 500 closed down 0.56%, and the Nasdaq closed down 1.43%.

Company Corner


Byron’s Beats

As Michael alluded to earlier, Naspers will be spinning off Multichoice early next year. This is a significant move from a management team who are seriously trying to unlock value after a lot of pressure from shareholders.

Historically Naspers used the Multichoice cash cow to fund new acquisitions. I can safely assume that the money used to make the original Tencent investment would have come from your DSTV/M-Net subscriptions in the late nineties.

Pay television arrived in SA in 1986 (the year I was born) when M-Net was launched by Naspers. In 1993 Naspers created a subsidiary called Multichoice which was to manage M-Net as well as the hardware behind the services such as decoders and satellites. In 1995 DSTV was launched which had about 20 channels including SuperSport, ESPN, SABC, Cartoon Network, CNN and MTV. In 2000 DSTV expanded into sub-Saharan Africa and some of the Indian Ocean islands (I remember watching a Springbok game in Bali on SuperSport in 2009). In 2003 dual view was launched and in 2005 the first PVR decoder was available, 2008 saw the first HD channels and in 2011 BoxOffice was launched. Thank you Wikipedia.

Today Multichoice has 13.5 million subscribers across Africa. Last year it had revenues of R55.5bn and trading profits of R5.5bn. The group estimate profits will come in at R6.1bn this year. This business currently has some tough challenges ahead. The most obvious one is the streaming competition from the likes of Netflix. Multichoice have launched there own streaming service called Showmax, which as a consumer, I must say has a great selection.

The other big challenge is sport. Live sport is massive and growing. It is the best form of reality television, and it never gets old. The problem for Multichoice is that the rights to these leagues and events are priced in Dollars, Euros or Pounds. Subscriptions they charge are in Rands and other sub-Saharan currencies, which have mostly depreciated in recent years. You can only access Sport through the premium subscription because the other channels actually subsidise the costs of bringing the British Premier League, La Liga and Serie A to our screens. I do feel however that streaming sport is the future and I know Multichoice will be well aware of this. I am sure they are biding their time until they launch a proper pay per stream service.

So what about valuations? Let’s be conservative and give the business a 12 times profits valuation. That would value the business at R73.2bn. Multichoice would be in the league of Bidvest, Mediclinic, Redifine and Mr Price. Still a sizeable business. Phutuma Nathi shareholders will end up with 25% of the business so there will be some form of dilution. As a Naspers shareholder, you will receive Multichoice shares which at this valuation will trade at around R150 a share. A decent value unlock considering that the whole of Naspers traded at R150 a share in 2009.

We endorse this decision. Naspers recently raised R140bn (twice the size of Multichoice) by selling 2% of Tencent and R33bn from the sale of their Flipkart stake. They no longer need the cash from Multichoice. This may also give them room to list elsewhere which could unlock even more value.


Michael’s Musings

Since the Steinhoff scandal and the resulting wealth destruction, market participants have been very jittery. Which has not been helped by things like the Tiger Brands listeriosis outbreak, the Nepi Rockcastle share price manipulation and further MTN issues. There has been a lack of winners recently too, which could have helped people move on from the pain of these losses. If these were low key small-cap stocks, not many people would have noticed. But it has been the big blue chip companies taking the strain. Blue-chip stocks are meant to be a haven in a turbulent market, now that is no longer the case.

We can now add Aspen to that list. After Paul wrote about Aspen on Friday morning saying that the stock looks cheap, the stock fell a further 17%. Our view hasn’t changed, we just think it looks cheaper. Aspen insiders seem to agree with us; their last two SENS announcements have been notifications of insiders buying stock.

I think the over reaction in the Aspen share price is due to the jitteriness mentioned above, coupled with general gloominess around EM markets. Thankfully, after a very turbulent day of being up 4%, then down 3%, the Aspen share price closed up 0.9%. Normally turbulent days like that coincide with the market finding its new ‘level’ for a stock. We still own Aspen for clients, but I don’t think the share price will pick up until the current negative cloud lifts. Although, often all it takes is one positive piece of news.

Our 10c Worth


One thing, from Paul

Donald Trump moved ahead with more trade tariffs last night. A 10% tax on $200 billion in Chinese imports will take effect next week, and may rise to 25% at year’s end. The US market slumped on the news.

China has already said that they would retaliate with tariffs of its own on US goods entering its market, just as it did after following the initial salvo of tariffs on $50 billion in Chinese products imposed a few weeks back. Ominously, Trump stated that “if China takes retaliatory action against our farmers or other industries, we will immediately pursue….tariffs on approximately $267 billion of additional imports. ”

In other words, starting next week the US will have imposed tariffs on nearly half of the Chinese goods imported to the US, which last year were valued at $505 billion. If he follows through on his next threat, all Chinese imports would be hit.

In Trump’s mind, America comes first, and he expects to extract some kind of concessions from the Chinese. As I have written before, this is unlikely. Chinese public opinion is very resolute – no concessions will be made to the bullying Western power. Party editorials are literally drawing parallels between this episode and the Opium Wars with Imperial Britain from 1839 to 1860. That time a humiliated China gave the British the island of Hong Kong. This time, the view from Beijing is that Trump can get stuffed. They will wait until his time in office is over.

Trump has specifically tweeted that the US stock market is doing well, whereas’ China’s has been on the back foot.

That’s true, but as the Wall Street Journal recently pointed out, two other important drivers of the Chinese economy—state-owned firms and real estate—are doing well. Real estate is thriving thanks to a massive Beijing-financed apartment-buying program for “slum dwellers,” which has kept inventories near multiyear lows.

Remember, tariffs are taxes on consumers. Unsurprisingly, Trump’s new round of tariffs drew immediate and widespread condemnation from the US business community, especially retailers. Elsewhere, multinationals have played down the likelihood of moving any production activity to the US, where manufacturing costs are simply much too high.

Linkfest, Lap it up


With September marking 10-years since Lehman collapsed, there have been many posts about the historic day. Here is one from a managing director and some of the lessons he learnt from the day – The Good Story.

One of the cities I visited in Europe was Budapest. The city was reduced to rubble during world war two; it is only when you visit these places that you truly realise how devastating war is – The Real Reason Europe Needs The EU

Infographic: The Real Reason Europe Needs The EU | Statista You will find more infographics at Statista

Vestact Out and About

Paul wrote a piece for Business Day’s Wanted magazine, talking about luxury goods – Up your stock and share in the luxury of French luxury goods company, LVMH.

Signing off

Despite Tencent being down, Naspers has opened slightly in the green this morning. Helping to close that NAV discount. In the state capture enquiry today, ABSA will be appearing to answer questions; Standard Banks testimony yesterday rattled some people. There are no significant data releases today, we do have Mario Draghi talking and the OPEC meeting though. The JSE All-share is down on the open.

Sent to you by Team Vestact.

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