Prosus hopes to close discount to NAV with $5bn share buyback
DURBAN - PROSUS shares rose more than 5 percent on the JSE on Friday after the Dutch technology giant said it intended to buy back up to $5 billion (about R81bn) in its own and Naspers’ shares, in an effort to reduce the discount between the companies’ share prices and their underlying assets.
Prosus said it intended to buy back up to $1.37bn of its own shares and up to $3.63bn of Naspers shares after the release of its half-year results, which were expected on November 23. Prosus, unbundled from Naspers last year, also owns a 31 percent stake in Tencent.
Prosus and Naspers chief executive Bob van Dijk said they had found several large merger and acquisitions opportunities in their sector to be fully priced and had stayed disciplined.
“Utilising cash to own more of our current portfolio through a purchase of our own shares – when the discount to net asset value (NAV) is sizeable – is a sensible use of capital,” Van Dijk said.
Prosus said the share buyback was a further step to crystalise value for shareholders, and it followed earlier actions such as the unbundling of
MultiChoice Group and the listing of Prosus on Euronext Amsterdam last year.
Michael Treherne, a portfolio manager at Vestact, said the rationale for Prosus was that they were buying Naspers shares at a deep discount to its NAV.
“By extension, the management are saying that they think the market is undervaluing the internet assets that Naspers owns. What makes the move interesting is that Naspers’ biggest asset is Prosus itself. This will create a bit of a circular holding structure,” Treherne said.
He said the share buyback was part of management’s commitment to reduce both Naspers’ and Prosus’ big discount to NAV.
“Reducing the discount to NAV has been something that management has been working on for a few years now, and is the reason for the existence of Prosus in the first place. At the end of the day, having a smaller discount to NAV would be a good thing for existing shareholders,” Treherne said.
Prosus share price leapt to R1 650 on Friday, while Naspers shares also gained more than 4 percent to R3 171.
Prosus shares closed 2.97 percent up at R1 626.93, while Naspers shares closed 3.98 percent higher at R3 152.32.
Peter Takaendesa, the head of equities at Mergence Investment Managers, said the wider discounts at which Naspers (more than 50 percent) and Prosus were trading compared with the market value of their underlying investments and high valuations of assets in markets they had been looking for acquisitions made share buybacks more attractive than pursuing acquisitive growth.
“On balance, the proposed buyback of Naspers and Prosus shares is largely positive. This is the second share buyback the combined Naspers group has implemented in 2020, but the structure is different this time, as Naspers is not directly selling more Prosus shares,” Takaendesa said.
He said they believed this was a step in the right direction, although the board would still need to take a lot more steps to really unwind the discount sustainably.
“A significant share price move at Tencent could easily offset the benefits of this $5bn proposed share buyback, so it is important to consider all the moving parts when investing based on a corporate event such as this one,” Takaendesa said.