When analysing the JSE one should pay especially close attention to Naspers. The share makes up 25% of the JSE Top 40 Index and 21% of the All Share Index. Any movement in the Naspers share price has a significant effect on the JSE.
Since the start of the year the JSE All Share Index has gained by 18%. However, if Naspers is excluded the gain would have been just 9%. Part of the reason is the sheer size of Naspers with a market capitalisation of just under R1.7 trillion.
The Naspers share price has rocketed by over 90% since the start of the year. Price gains have been 24% over the past three months, boosted by strong financial results from Naspers and from Tencent, which alone makes up over 100% of Naspers’ market capitalisation.
Analysts have upgraded Tencent’s earnings forecasts yet again based on significant revenue growth across all divisions. Analysts have also upgraded their valuations of Naspers’ remaining e-commerce assets. The capital expenditure in these e-commerce assets of the past few years is starting to bear fruit. An increasing number of these businesses have begun to monetise their business models.
The outlook for Tencent remains positive. It has grown to such a point that its sheer size and dominance have become a reinforcing competitive advantage. Scottish Mortgage, the largest investment trust listed on the London Stock Exchange with a market capitalisation of over £6 billion, has Tencent as its third largest holding, comprising 6.8% of the portfolio. The managers of Scottish Mortgage highlight that the digital arena is dominated by just six companies, including Alibaba, Baidu and Tencent in China and Alphabet, Amazon and Facebook in the US. The investment managers of Scottish Mortgage: “Continue to believe that the competitive positions of these digital network businesses will be further cemented by the power of their massive data sets and new advances in computing.”
Although the share price has surged 90% since the start of the year, Naspers has never been so cheap in terms of its discount to net asset value (NAV). Its listed holdings add up to over R5,400 per share, which means the share price is trading at a massive 32% discount to NAV.
Despite the glowing outlook for Naspers and the compelling value offered by the shares prudential investment guidelines advise against allocating the JSE’s full 25% weighting in lower risk portfolios.
While a lower than market weighting to Naspers raises the risk of underperforming the JSE All Share Index, the priority in lower risk portfolios is to avoid losses which result from excessive portfolio concentration. Like all shares, even Naspers has risks attached
So reports Overberg Asset Management
