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For tax-sensitive investors, if the discount gap between Prosus and Naspers turns out to be much smaller than expected, it would be better to take the Naspers shares and NOT trigger the capital gains tax (CGT) event! The company is well-capitalized as well, with a net cash position of $4.5bn, and an undrawn ~$2.5bn revolving facility as of FY20. Prosus currently places well into the list of the top-50 European companies by free-float market cap, and should thus, automatically qualify for inclusion in September. In short, we doubt that we will see Naspers announcing an accelerated bookbuild again soon, unless the discount gap widens materially.As a reminder, Naspers sold 22mn Prosus shares in an accelerated bookbuild on 22 January 2020.
Index inclusion could trigger value unlock from increased passive AUM fund flow, a narrower holding company discount, and increased interest from developed market investors. A narrowing of the discount from 37% to 20% increases Prosus’ free float market capitalisation by 27% or R100bn, thus increasing its weight in the ALSI to 6.5%. Is the discount an issue if the share price continues to perform? One source of such demand might be passive interest if Prosus is included in the Euro Stoxx 50 Index later this year. Note that the discount reduction is a key component of long-term incentives as well, given it is closely linked to increasing the value of the private e-commerce portfolio.At <20x earnings, Prosus represents growth at a very reasonable price.With the vast majority of its NAV derived from its Tencent stake, Prosus' periodic results typically offer little in the way of material surprises. We still believe the optionality lies in Naspers rather than in Prosus. Source: Bloomberg, Anchor . Investors “do not have a great desire to get involved with the Naspers venture capital fund”, Mark Artherton, CEO and head of research at Inteqres in London, told The Africa Report. Figure 1: Naspers and Prosus’ discount to NAV since Naspers announced the plan to list Prosus. In the case of Naspers, its discount to NAV has remained fairly stable at between 42% and 43% (42.6% as at 10 February 2020). The discussions around holding companies or conglomerates often focuses on the market discount to the Net Asset Value (NAV) of the underlying businesses, often referred to as the conglomerate discount. Currently, we estimate the Naspers discount to NAV to be c. 45.2% and the Prosus discount to NAV c. 30.2%. It is possible though that SA institutional investors are treating the two shares as the same exposure, irrespective of the decision taken by the JSE to treat them as separate for index purposes.It’s hard to apply much from a fundamental perspective to predict where this discount should be and hence where it goes from here. In the case of Naspers, however, we can’t see anything changing that would cause its discount to narrow relative to its recent history. Post its listing, Prosus’ discount to NAV narrows to 25%, while Naspers’ NAV remains stable at 40%.
Our main concern is that, once all of the initial rebalancing noise is out of the way, Naspers’ market cap will still be too big for the SA market, making local investors forced sellers whenever Naspers outperforms the broader market. Note. Thus, it seems even holders of Prosus shares on Euronext will be able to trade their Prosus shares from the day of listing without the trade ultimately failing.
Subsequently, Prosus’ discount has widened to between 31% and 33% (33.3% as at 10 February 2020). We further assume that the NAV grows at a rate of 15% p.a. Prosus will include all of Naspers’ internet interests outside of South Africa (SA), including its 31% stake in Tencent and investments in mail.ru, OLX, Avito, letgo, and PayU etc. Prosus's discount to net asset value is 40%. Prosus currently trades at around a 30% discount to its intrinsic net asset value, while Naspers trades at around 50%. One potential option for Naspers would be to sell more of its Prosus stock, then use the cash to buy back Naspers at the discount to its NAV, though …
The core portfolio has largely benefited from COVID-19, with pockets of weakness isolated in classifieds and Swiggy. Source: Anchor, Bloomberg This is because local institutional investors will continue to be limited by the cap on maximum exposure they can hold in a single stock in their funds.The JSE operates on T+3, while Euronext is on T+2. The discount has widened appreciably during the recent rally in the Tencent … We find that, after 5 years, investors who opted to defer the CGT cost and take up additional Naspers shares were 4% worse off than those that opted for Prosus. The combined listed value of these businesses is $169bln,… However, for non-tax sensitive investors, with the discount gap having narrowed so much, there may be a shorter-term opportunity developing in Prosus.
For tax-sensitive investors, if the discount gap between Prosus and Naspers turns out to be much smaller than expected, it would be better to take the Naspers shares and NOT trigger the capital gains tax (CGT) event! The company is well-capitalized as well, with a net cash position of $4.5bn, and an undrawn ~$2.5bn revolving facility as of FY20. Prosus currently places well into the list of the top-50 European companies by free-float market cap, and should thus, automatically qualify for inclusion in September. In short, we doubt that we will see Naspers announcing an accelerated bookbuild again soon, unless the discount gap widens materially.As a reminder, Naspers sold 22mn Prosus shares in an accelerated bookbuild on 22 January 2020.
Index inclusion could trigger value unlock from increased passive AUM fund flow, a narrower holding company discount, and increased interest from developed market investors. A narrowing of the discount from 37% to 20% increases Prosus’ free float market capitalisation by 27% or R100bn, thus increasing its weight in the ALSI to 6.5%. Is the discount an issue if the share price continues to perform? One source of such demand might be passive interest if Prosus is included in the Euro Stoxx 50 Index later this year. Note that the discount reduction is a key component of long-term incentives as well, given it is closely linked to increasing the value of the private e-commerce portfolio.At <20x earnings, Prosus represents growth at a very reasonable price.With the vast majority of its NAV derived from its Tencent stake, Prosus' periodic results typically offer little in the way of material surprises. We still believe the optionality lies in Naspers rather than in Prosus. Source: Bloomberg, Anchor . Investors “do not have a great desire to get involved with the Naspers venture capital fund”, Mark Artherton, CEO and head of research at Inteqres in London, told The Africa Report. Figure 1: Naspers and Prosus’ discount to NAV since Naspers announced the plan to list Prosus. In the case of Naspers, its discount to NAV has remained fairly stable at between 42% and 43% (42.6% as at 10 February 2020). The discussions around holding companies or conglomerates often focuses on the market discount to the Net Asset Value (NAV) of the underlying businesses, often referred to as the conglomerate discount. Currently, we estimate the Naspers discount to NAV to be c. 45.2% and the Prosus discount to NAV c. 30.2%. It is possible though that SA institutional investors are treating the two shares as the same exposure, irrespective of the decision taken by the JSE to treat them as separate for index purposes.It’s hard to apply much from a fundamental perspective to predict where this discount should be and hence where it goes from here. In the case of Naspers, however, we can’t see anything changing that would cause its discount to narrow relative to its recent history. Post its listing, Prosus’ discount to NAV narrows to 25%, while Naspers’ NAV remains stable at 40%.
Our main concern is that, once all of the initial rebalancing noise is out of the way, Naspers’ market cap will still be too big for the SA market, making local investors forced sellers whenever Naspers outperforms the broader market. Note. Thus, it seems even holders of Prosus shares on Euronext will be able to trade their Prosus shares from the day of listing without the trade ultimately failing.
Subsequently, Prosus’ discount has widened to between 31% and 33% (33.3% as at 10 February 2020). We further assume that the NAV grows at a rate of 15% p.a. Prosus will include all of Naspers’ internet interests outside of South Africa (SA), including its 31% stake in Tencent and investments in mail.ru, OLX, Avito, letgo, and PayU etc. Prosus's discount to net asset value is 40%. Prosus currently trades at around a 30% discount to its intrinsic net asset value, while Naspers trades at around 50%. One potential option for Naspers would be to sell more of its Prosus stock, then use the cash to buy back Naspers at the discount to its NAV, though …
The core portfolio has largely benefited from COVID-19, with pockets of weakness isolated in classifieds and Swiggy. Source: Anchor, Bloomberg This is because local institutional investors will continue to be limited by the cap on maximum exposure they can hold in a single stock in their funds.The JSE operates on T+3, while Euronext is on T+2. The discount has widened appreciably during the recent rally in the Tencent … We find that, after 5 years, investors who opted to defer the CGT cost and take up additional Naspers shares were 4% worse off than those that opted for Prosus. The combined listed value of these businesses is $169bln,… However, for non-tax sensitive investors, with the discount gap having narrowed so much, there may be a shorter-term opportunity developing in Prosus.