How to buy Tencent stock at over 20% discount

Naspers was founded as Die Nasionale Pers (Afrikaans for “The National Press”) on 12 May 1915.

Initially, it only published newspaper, but soon expanded to newspapers and books as well as other forms of media. Today, it operates through three segments: Television, Internet and Print.

In 1985, Nasionale Pers, in conjunction with several other South African media companies formed the pay-television service M-Net, which was listed in 1990 on the Johannes Securities Exchange (JSE). Nasionale Pers itself would become listed on the JSE in 1994, and in 1998 the name of the group was changed to Naspers.

At the turn of the century, Naspers continued its foray into the media space.  In January 2000, it merged its existing private education activities with that of another leading South African private education business to form Educor Holdings Limited, one of the leading private education providers in South Africa. During the same year, Naspers also re-organised and branded its print media business as its “Media24” division.

In 2001, Naspers made a bet on a small, obscure web company abroad. They acquired a 46.5% interest in the operator of an instant messaging platform (QQ) in China. That’s right. A South African television operator purchased 46.5% of Tencent for just $32 million. With a return on investment of over 4000x, it is one of the greatest start-up investments in recorded human history.

In late 2018, encountered new problems as they suffered from success. Their huge stake in Tencent had resulted their own company having an outsized weighting on the JSE, despite efforts to reduce these effects via a second listing. Meanwhile, during this time, Europe found itself lacking internet technology companies capable of competing with U.S. and Chinese giants like Google, Facebook, Alibaba and Tencent. Out of the top 20 internet companies by value in 2018, none had headquarters in Europe.

The solution to both? The spinoff. In 2019, Naspers announced that it would be transferring all of its international assets, including its Tencent stake, to a new company, Prosus, which was to be listed on the Amsterdam exchange. Its market capitalization on its first day of trading was roughly $100 billion, instantly making it one of the 10 biggest consumer internet groups in the world.

Despite the spinoffs and additional listings, both Naspers and Prosus continue to trade at discounts relative to their stake in Tencent. In July 2021, additional efforts were made to help reduce this gap via a share swap. At the time, Prosus had a market capitalisation of 138 billion EUR while its 28.9% Tencent stake (worth 172 billion EUR).  In a deal that cost 144 million EUR in just fees alone, Prosus issued shares to purchase 45.4% of Naspers’ shares, in order to tighten the 35% (Naspers) and 20% (Prosus) discounts shares were trading at.  

This discount continues to remain in present, partly due to 75+% of Prosus’ NAV (net asset value) being derived from its Tencent stake (as of December 2021). In addition, both Prosus’ and especially Naspers’ dominance on their respective exchanges, highly incentivises portfolio managers to sell their shares in order to diversify.

As of February 2022, Tencent shares trade at 424.00 HKD – giving a market cap of 4.04 trillion HKD, meaning Prosus’ 28.9% Tencent holdings are worth $149.5 billion USD. Combined with their other assets (valued in Dec 2021), brings their NAV to $199.6 billion USD. In contrast, Prosus’ 53.59 EUR share price means a market cap of 136.6 billion EUR, roughly equal to $152.7 billion USD, which is a 23.5% discount compared to its net asset value.

_{Note – USD/HKD: 7.81, USD/EUR: 0.89}