Category Investments

Stock Pick of the Week

16 September 2021 Momentum Securities

This week’s pick: Prosus

About: Prosus N.V., or Prosus, is a Dutch company that is the international Internet assets division of South African multinational Naspers. The global investment group is the largest consumer Internet company in Europe, and among the largest technology investors in the world.

Serfaas Badenhorst, Momentum Securities Portfolio Manager for the Cape Town region, shares his insights.

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Our Stock Pick of the week is one that we have discussed in the past, but we've seen a significant decline in share price. So I thought it’s necessary to just unpack the fundamentals and to see why we are holding on to the stock and the stock I'm referring to is Prosus. From a revenue point of view Prosus recently brought out the income for the second quarter of 2021 and that was mostly in line with endless expectations.

Though there was software revenue from gaming, this was offset by an increase in cloud, fintech as well as ad revenue. Then a lot of noise happening in the Chinese market in regard to regulation and I think it's important to note that internet regulation is not something that's being limited to China, it's a worldwide happening.

Regulators are seeing or experiencing what the impact is, from a social point of view on younger children spending a lot of time on gaming and they want to limit that for the future. I think it's important to notice that Tencent actually came out and said, listen, we are supporting this initiative, and we will be 100% compliant. So although the Chinese government is now limiting gaming to three hours per week for children, it's important to note that from a revenue point of view, only 2.6% of the total revenue from gaming is from an audience younger than 16 years old. So not a lot of revenue being lost in this space for Tencent. Tencent also had a significant growth in international gaming, so a lot of the revenue that they would lose in China, that would be offset by increases in Japan and Korea. So not a lot of issues from an income statement point of view.

Prosus also recently bought BillDesk and BillDesk is an Indian success story that was started in 2000. It's the leading online payment service providing in India, so a lot of scope for growth still happening there. From a fundamental point of view, everything is still in place for Prosus and that is why our Stock Pick of the week is Prosus and if you do not have exposure to Prosus, it might be a great time to stick your toe in the water.

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