Naspers investors want big deals and buybacks after Tencent’s unexpected profits

By Promit Mukherjee

JOHANNESBURG (Reuters) – Investors in Naspers Ltd, Africa’s largest company, said on Thursday they want the proceeds from the sale of a $14.7 billion stake in Tencent Holdings to be used for significant acquisitions or share buybacks.

Dutch-listed Naspers subsidiary Prosus NV sold a 2% stake in the Chinese gaming and social media giant on Thursday in the largest-ever block trade, reducing its stake to 28.9%.

The dominant position in Prosus’ portfolio is occupied by Tencent, owner of China’s largest messaging app, WeChat.

Bob van Dijk, chief executive of Naspers and Prosus, said Thursday that the share sale provided financial flexibility to pursue mergers and acquisitions, continue its ongoing share buyback program and explore other ways to create shareholder value.

Analysts say a large acquisition could have a positive impact on other Prosus business segments, such as classifieds, food delivery, fintech, payments and online education.

“We could see more deal announcements in the next six months or by the end of the year,” said Jean Pierre Verster, chief executive of South African hedge fund manager Protea Capital Management, which owns stakes in Naspers and Prosus.

Aside from the acquisitions, Verster, who said Prosus had shown discipline in deploying capital following its earlier sale of a stake in Tencent in 2018, said that could translate Thursday’s gain into another share buyback.

“In my view, this is a very efficient allocation of capital and should reduce the discount as shareholders will have confidence that management is allocating capital efficiently,” he said.

Naspers spun off its international assets into Prosus and listed it on the Amsterdam Stock Exchange in 2019, in an attempt to reduce the huge discount its Johannesburg Stock Exchange (JSE)-listed shares have to the value of its Tencent stake.

In October, Prosus announced that it planned to repurchase $1.37 billion worth of Prosus stock and $3.63 billion worth of Naspers stock.

This has not yet reduced the discount.

At current share prices, Naspers trades at a 26% discount to the value of its roughly 73% stake in Prosus. Prosus, in turn, trades at a 22% discount to its stake in Tencent.

Peter Takaendesa, head of equities at Mergence Investment Managers, which also owns shares of Naspers and Prosus, said he would prefer another share buyback rather than takeovers because apart from Tencent and its online classifieds service, other Prosus businesses are loss-making.

“A portion of the proceeds should be used for share repurchases, which may be a better way to allocate those proceeds rather than investing in assets that we don’t know how they will perform,” he said.

(Reporting by Promit Mukherjee; editing by Joe Bavier and Barbara Lewis)