With the recent downturn in the market due to Mr. Trump that can’t stop tweeting, and the subsequent growing uncertainty of a trade deal being reached anytime soon, we take a look at the share that moves our local market the most, namely Naspers.
One of the main concerns for investors has always been how Naspers plans on eliminating the discount to their NAV – the performance of Naspers being way too reliant on that of Tencent. This year, however, Naspers have made a noticeable effort to narrow that gap with the unbundling of Multichoice and announcing that they intend to list their international internet assets separately on Euronext Amsterdam under “Newco”. The Newco listing will be done in an effort to reduce Naspers’ weighting on the JSE and give foreign investors direct access to Naspers’ international internet assets. Newco will also have a secondary listing on the JSE. The obvious concern here is that investors, local and foreign, will just buy Newco shares since this is where the Tencent exposure will sit. But still, all things being considered, a very positive move for investors as Naspers will own 75% in Newco.
So, from a company-perspective Naspers seem to be moving in the right direction and management making the right noises, but what does the global landscape look like? Trump’s trade tariff war has now turned into a tech war and technology-linked companies have been suffering. The shift started when Trump had Huawei’s CFO Meng Wanzhou, who is also the daughter of the founder, arrested in Canada at the end of last year. This did not help with easing trade tensions at the time and has since escalated to Huawei being added to the US Department of Commerce’s Entity List whereby they have been blacklisted. The back-and-forth continues and Trump now sees an opportunity to use Huawei as a bargaining chip with the trade negotiations.
The shift in narrative from trade to tech, has impacted Naspers severely. Naspers went from a 15-month high of R3’750.01 on 29 April to Friday’s close of R3’127.75, a 16.5% drop in just 4 weeks. There has historically been good support just below the R3’000-level which investors will keep a keen eye on. Analysts are still bullish on Naspers – the Bloomberg consensus analyst target price being R4’602.41.
Trump is so unpredictable and impulsive that it makes it very difficult to know what he will do, and when he might do it. He may continue to take the tough stance on Huawei in order to “protect” US tech companies from Intellectual Property (IP) theft, or he might relax it in order to win back some favour with China and switch the narrative back to trade tariffs. One factor to be cognisant of is that he might continue to extend the trade war as he seeks re-election. The irony of this drawn-out trade dispute with China is that he is severely hurting the people he says he is trying to protect, namely the US citizen who will end up having to foot the bill. Mr. Trump is playing a very dangerous game that can end up working against him.
All things being considered, we think the current price is a good entry point for Naspers. The share price will be volatile, especially in the short-term, but we like the strategic direction of the company which should serve them well long-term.
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Stephan is a portfolio manager and full-time trader. He developed his passion for the markets while working in the Stockbroking division of Standard Bank and is especially passionate about CFD trading. Stephan studied at the University of Stellenbosch and completed a BComm Honours (Business Management) with a focus in Portfolio Management and Bonds. He has also passed the JSE Equity Trader’s Exam, RE5 (Representative) and RE1 (Key individual) Exams as well as the Registered Persons Exams (RPEs) in order to give advice on equities.