Naspers (JSE:NPN) is a South African holding company with a global portfolio of media and technology investments. Naspers has a 34% equity stake in Tencent (HKSE:00700), a Chinese internet company most known for its QQ instant messaging platform with over 800 million active users. The market values Naspers’s stake in Tencent at ~$48 billion but the parent company at just ~$45 billion. Going long Naspers and shorting a proportionate number of Tencent shares effectively allows us to create a Naspers “stub” at a negative $3 billion valuation. We feel Naspers is worth substantively more, even after tax-affecting for a disposition of Tencent. Better yet, at today’s prices the market is paying us to own Naspers ex-Tencent.
The Naspers stub includes the leading South African Pay TV company MultiChoice, which has a more than 90% market share not to mention several Pay TV operations across Sub-Saharan Africa that have long-term subscriber growth potential resulting from increased Pay TV penetration. Naspers owns, as well, a major publisher of magazines and newspapers primarily sold in South Africa. The cash flow of these assets continues to support Naspers’s portfolio of Internet/e-commerce investments, including several companies focused on emerging markets that could prove valuable.
The market is paying us to own both Pay TV with positive cash flows and media assets with attractive market positions along with an internally-funded portfolio of emerging market e-commerce investments. When the price is right, even absolute value investors like us can feel like emerging market venture capitalists.
From Steven Romick (Trades, Portfolio)'s FPA Crescent Fund Q3 2014 Commentary.
