Naspers: significant value at these levels

10 October 2018Ashbhurton Invesments

Naspers has lost more than a third of its value this year but is offering significant value at these levels.

Nick Crail, fund manager at Ashbhurton Invesments said that the correction in Naspers share price is largely correlated to the fall in Tencent share price as Naspers holds 31% of the shares in Tencent.

“We continue to expect the Tencent share price to be the primary driver of the Naspers share price in the short to medium term. We see significant value in the Naspers share price at these levels.”
Tencent has fallen 38% in price since the middle of March 2018.

Crail says there are several reasons for the drop. “The shake-up of regulatory and oversight landscape within China has resulted in increased regulation as well as a bottleneck in new product approvals within China.

“The ‘Trade Wars’ are also hotting up between the US and China. As a result the entire tech sector within China has seen meaningful drops in their relative share prices over the last 7 months. Alibaba for example is down 30%.”

Crail also points to a short term quarterly earnings miss. Tencent released new games that they have not (to-date) received approval to monetise which has had an impact on earnings on the short term.

“The recent US tech sell-off has also had a knock on impact,” Crail noted. “Over the last 3 months the FANG+ Index has fallen by 20% relative to the MSCI AC World index. As US rates have started to rise there has been a sell-off in growth assets like Napsers with value stocks performing significantly better.”

Crail said that he excepted the regulation headwinds to continue in China, but that he is optimistic the bottleneck issue will be resolved soon.
“We also believe that Tencent has been aware of the new regulations before they were announced and has taken early and significant action in order to comply.

“We expect the approval process to restart soon but would expect Q3 numbers (at east) to be weaker than initially expected. While the concerns around ‘Trade Wars’ remain, we do not expect Tencent to be fundamentally scarred from the rhetoric and hence think investor nervousness is overdone.

“On the US tech sell-off, we continue to believe that investors will remain interested in innovating companies taking market share across industries,” leading Crail to the conclusion that there is significant value in Tencent shares at present with investors with a 1year+ timeframe.

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