Naspers and Prosus have bright operational and commercial prospects despite shaving off as much as R300 billion in value on the JSE yesterday after Tencent was placed on the United States list of companies allegedly aiding the Chinese military.
In afternoon trade on the JSE today, Prosus and Naspers appeared to narrow down the previous day’s big losses.
This comes after the two companies’ stocks plunged by more than 8% on the JSE yesterday.
Analysts, however, said today that Prosus and Naspers’ prospects are brighter despite the share losses on the JSE after announcement of Tencent being placed on the US Department of Defence blacklist.
Naspers and Prosus hold about 24% of Tencent although they do not have management control of the Chinese fintech, gaming and media giant.
“All (Tencent, Prosus and Naspers) appear to have very positive operational and commercial prospects. These events lean on sentiment,” said Steve Minnaar, head of global equities at Abax Investments.
He added that although “it remains business as usual” for Prosus and Naspers, “sentiment towards the shares had certainly taken” a knock with some investors likely to start applying a risk premium to the stock.
“Western investors would likely apply a higher risk premium to these companies in the short to medium term.”
Nonetheless, Tencent was on a growth trajectory, propped up by “strong gaming franchises, a comprehensive payment and social ecosystem” through Wechat and WePay as well as strong datacentre and processing operations. The company also has a range of other businesses in fast growing technology sectors.
“They have managed their expenses tightly in recent years and improved margins. The share is trading at a discount to its historical multiples, yet the company is in better shape – an attractively valued prospect then,” explained Minnaar.
Additionally, the investment portfolio under Prosus and Naspers -touted as providing a discounted entry into Tencent - was “starting to move from losses” to profits.
The two companies also have new management teams.
In 2018, Tencent declined about 50% after the Chinese regulator clamped own on gaming, regulating hours of play by age groups and stopping the approval of new titles for a while.
Whereas the financial impact was far less, the negative sentiment caused most of the impact although the decline was reversed once gaming approvals resumed again.
BUSINESS REPORT