Naspers’s full-year earnings more than doubled as its e-commerce businesses became profitable six months ahead of schedule and from a higher contribution from China’s Tencent, which accounts for the bulk of earnings and revenues.
The technology investor that also controls the Netherlands-based technology group Prosus said its core headline earnings per share, a key indicator of operating performance from continuing operations rose to 1 148 US cents for the year to March 31, from 546 US cents a year ago.
Anchor portfolio manager Mike Gresty said while it had been evident at the interim stage that the e-commerce businesses would reach profitability earlier than envisaged in the original guidance, it was nevertheless a milestone to have achieved this.
So long as the e-commerce portfolio was largely unchanged, the building of scale across the verticals should lead to improved profitability in the future.
He said in recent years Prosus had reduced the capital spent on early stage investments and the priority had shifted to getting the existing portfolio to profitability. The market would be watching closely what the new CEO said about the investment strategy going forwards, said Gresty.
Flagship Asset Management Global portfolio manager Philip Short said albeit the small profit from the e-commerce businesses was a positive development, it was still too early to assess whether it would begin to reduce the discount at which Naspers shares were trading to net asset value.
Short said Prosus’s write-down to zero of its stake in Indian online education company BYJU, a stake once worth $2.1 billion was an indication that it was a good opportunity for the incoming CEO at Naspers and Prosus to do full valuation audits of the group interests. Online sources indicated to BR that BYJU was facing financial and governance issues.
Regarding Tencent, Naspers’s profit from equity-accounted results decreased by 46% to $2.8bn (R51bn), driven by Tencent’s decreased gains on acquisition and disposals, offset by lower impairment losses and contributions from associates.
Naspers trimming the group position in Tencent by 2% resulted in a gain of $5.1bn during the year (2023:$7.bn).
Naspers directors said it had been a “standout” year, as the group structure had been simplified; there had been improvements across “all core performance metrics”; and the profitability of the e-commerce business had been achieved six months ahead of schedule.
The share buyback programme also continued to deliver value for shareholders. In addition, a rapid deployment of AI-led technologies across Naspers’s systems was generating “real results”, and would “set the next frontier of value creation for the group”.
On May 17 Fabricio Blioisi was appointed Prosus and Naspers’s new CEO, effective July 1, 2024. Ervin Tu, the interim group CEO, would become group president and chief investment officer.
Naspers and Prosus CFO Basil Sgourdos said following strong execution, “our e-commerce portfolio is profitable for the first time, well ahead of target. What’s more, our peer-leading growth accelerated and our profitable growth is set to continue. Core headline earnings almost doubled, and our strong e-commerce results and performance at Tencent have driven a threefold increase in free cash flow.
“We also reorganised the group, bringing us closer to our businesses so that we can enhance their performance further. AI continues to be our highest priority… We have made substantial progress this year in delivering against our strategy,” said Tu.
“At the margin, the much-improved performance from the e-commerce division is another positive for our investment case and, if sustained could in time help the investment case of Naspers and Prosus become more than simply a discount play on Tencent,” said Gresty.
“As the free float of Naspers’s shares continues to decline thanks to the share buyback, it is probable in my view that we will start to see a point where there are fewer sellers around that are happy to part with their shares at the current 40% discount to net asset value, which should cause the discount to narrow gradually,” he said.
BUSINESS REPORT