Prosus due diligence.
Hatchworks has conducted due diligence on Prosus, a multinational media conglomerate investment group. Prosus focuses on online companies, especially in emerging countries and regions such as Russia, India, China, South America, South East Asia, the Middle East, Central and Eastern Europe and Africa.
In 2001, the South African media company Naspers invested around $32M in what was then a relatively new tech startup in China: Tencent Holdings. During the next 20 years, Tencent became the world’s biggest video games business by revenue and China’s largest social media operation. Naspers investment gave them a 31% stake in Tencent.
For years, Naspers’s discount to net asset value continued to increase. In 2018 management attributed this discount — 40 to 60% — to capital outflows from South Africa and the inability of South African institutions to fill the gap.
So they decided to spin-off their international holdings into a new multinational media conglomerate, Prosus. The reason for this spin-off was driven by decreasing the discount gap and providing more entries for potential investors. Naspers still holds a roughly 75% stake in Prosus.
Prosus was founded in 1997 and is headquartered in Amsterdam, The Netherlands. Prosus is listed on the Euronext Amsterdam, under the symbol ‘’PRX’’.
Prosus owns the following holdings around the globe:
- Payments & Fintech — PayU.
- Classifieds — OLX group.
- Food delivery — Ifood, Delivery Hero and Swiggy.
- Social & Internet platforms — Tencent and Mail.ru group.
- Ventures — Brainly, Udemy, Movile, SimilarWeb, honor, sololearn, Byju’s, Klar, Dott, Skillsoft, Shipper, Eruditus, ElasticRun, DappRadar, Bykea and meesho.
- Etail — Emag.
- Travel — Trip.com
A total of 59% of Prosus holdings consist of Chinese tech giant ‘’Tencent (31%)’’ and Russian social media company ‘’Mail.ru’ (28%)’. All other holdings have a combined weight of 41% in Prosus portfolio.
There were rumors relating to the delisting of certain Chinese companies listed on the NYSE. Tencent was one of them. However, according to Forbes, it’ll not ban Tencent for American investors in order to avoid a sell-off in the Chinese biggest tech giants which could have led to an economic fallout for the U.S.
Financials — Prosus
(Source: Marketscreener.com, investing.com)
Prosus current market cap is €149.8B and stock price is around €92.24.
With a predicted net-income growth of 21.4% for 2021E and 2022E, and a net income estimate for 2021E of in excess of €4.3B, this points to a P/E ratio of 32.5x.
The revenue/sales forecast is €3.8B for 2021E, indicating an EV/Sales ratio of 37.3x.
In terms of profitability, a negative operating margin of -8.44% is predicted for 2021E. This is currently lower than some of Prosus (PRX) competitors; for example, X has an operating margin of 7.33% for 2021E.
It’s worth noting that Prosus (PRX) isn’t a yielding equity.
According to CFO — Basil Sgourdos, Prosus has built over the years a portfolio of e-commerce assets with significant cash-flow generating capabilities. It’s now in a position to both invest in its asset portfolio and to repurchase its own shares, Basil stated. Many of these online businesses held by Prosus, like online marketplaces, fintech and food delivery, benefited from the pandemic.
In November 2020 Prosus did a share buy-back. This was mostly due to the fact that there were no opportunities to invest int other tech assets that were trading at premiums. Prosus said that it would create more value by buying back its own shares rather than investing in an expensive inorganic tech asset. It purchased a total amount of 1,186.760 shares at an average price of €87.50, equalling €103,841.50.
Let’s have a look at Prosus current NAV. As shown above, some public listed companies combined are worth €193.6B. However, Prosus also owns some private companies where the management valued these at around €11.1B. Prosus also holds a net-cash position of around €3.3B. Adding these all up, makes it a NAV of approximately €208B. Prosus market cap is €149.8B, meaning that it trades at a discount of around 27.9% relative to its NAV.
According to our analysis, Prosus shows some solid revenue growth along with impressive net-margins and a net-cash position of around €3.3B. It trades at a discount of 27.9% and since the confidence in the U.S economy is slowly declining, Hatchworks believes that certain emerging markets might benefit from this in the long-haul. As a result, Hatchworks has taken a position.
The Hatchscore is out 5 of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies
What is Prosus?
A multinational media conglomerate investment group. Prosus focuses on online companies, especially in emerging countries and regions such as Russia, India, China and South America, South East Asia, the Middle East, Central and Eastern Europe and Africa. In September, 2019, Prosus had a spin-off from South-Africa company, Naspers. Naspers still holds a majority stake in Prosus, namely 73%.
- Naspers Limited.
- The Vanguard Group, Inc.
- BlackRock Fund Advisors.
- Norges Bank Investment Management.
Advisors and Bookrunners:
- Goldman Sachs International.
- J.P. Morgan.
- Morgen Stanley.
What are the risks?
- Tencent, their biggest holdings could face some upcoming regulations in China. This could have a negative impact for Prosus operations.
- Prosus has invested and will proceed investing to develop and promote its business and their platforms. These businesses could become unprofitable and may hurt Prosus operating cash flow.
- Prosus is active in a number of markets, including emerging markets, which are in general of higher risk. Any political instability/changes or civil unrest, currency fluctuations, may negatively impact Prosus business operations.
- Naspers is their biggest stakeholder, any change in their holdings might affect Prosus share price.
- Jumia (JMIA).
- Sify (SIFY).
- Ferrovial (FER).
- Morgan Sindall (MGNS).
- Bob van Dijk: CEO & Executive Director.
- Patrick Kolek: CFO.
- Vasileios Sgourdos: Financial director & Executive Director.
The Hatchworks Team
The forecast figures are based on the data of Marketscreener.com, and not from Hatchworks:
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