For those not familiar with Prosus, it is a spin-off of Naspers' tech investments which is listed in the Netherlands. The biggest position in its portfolio is Tencent, of which it owns 28.9%. Prosus and Tencent stocks have crashed ~20% in the last few days due to the Chinese government crackdown on Tencent Music. Even after the crash, 28.9% of Tencent's outstanding shares are worth $150B , while the EV (Enterprise Value) of Prosus is $132B.
Tencent is a compounding machine with a long runway ahead:
- Enterprise Value: $524B
- Revenues (TTM): $78B
- Free Cash Flow (TTM): $19B
- Forecasted earnings growth (analyst estimates): 14%
- A service portfolio with wide moats: page 5
It still trades at around their intrinsic value (~1% above, according to my conservative estimates).
Let's assume the Tencent shares are worth $150B. So, theoretically, you can buy the whole of Prosus and liquidate its Tencent position which will leave you with around $18B in cash PLUS all of the other holdings below:
Prosus portfolio (% indicates Prosus holdings in the company) [indicates estimated value]:
- Social & internet platforms
- Tencent (29%) [$150B]
- Mail.ru (27%) [$1.6B]
- Classifieds [$13B]
- Includes OLX (100%) and Avito (100%) (biggest classifieds companies after Craigslist)
- Delivery Hero (25%) [$7.5B]
- Other food delivery holdings [$8B]
- Includes Swiggy (40%), one of the biggest food delivery operators in India
- Payment & fintech investments [$4.5B]
- Includes PayU (100%), one of the biggest online payment gateways in India
- Includes Remitly (24%), a major cross-border money transfer player
- EdTech
- StackOverflow (100%)
- Udemy (14%)
- Codeacademy (21%)
These are only a selected few, the full list can be found on page 32. Approx. market values taken from this seekingalpha article.
Adding up all these, we get $185B (which is 40% above current EV of $132B). Let's take a conservative sum-of-parts value:
- Tencent conservative value: $150B (my estimated DCF based valuation)
- Other holdings: $17B (assuming a 50% discount from their market price of $34B)
That adds up to $167B (26% above current EV of $132B)
Note: This is a theoretical calculation and Prosus will probably always trade at a discount to its holdings, as people may not like the other holdings and there is a risk that management will make stupid investment / purchase decisions (example : Softbank). However, seeing the quality of companies in their portfolio, I'm giving them the benefit of doubt and taking the plunge. I think it is a great way to get exposure to Tencent as well as the other non-listed companies. You could also buy Naspers (JSE: NPN) which owns 75% of Prosus and trades at an even greater discount. I personally prefer Prosus, as they are the ones directly interacting with Tencent and other portfolio companies and are also looking to buy out Naspers stake in them.
I've opened a position of roughly 10% of my equity portfolio (maximum I'm willing to invest in a single stock). I'm planning to hold forever (unless the stock price goes way above my guess of their intrinsic value)
Let me know what you guys think! Am I missing anything?
Sources
Submitted July 28, 2021 at 01:51AM by Shyamallamadingdong https://ift.tt/2WtXY2a
