Research Portal

“Tencent likely to report strong Q2 results” What does this mean for Naspers?


What does this mean for Naspers?

On Wednesday 17 August, Tencent reports second quarter earnings. Naspers owns 31,5% of Tencent, which is a material component of the valuation.

I expect a strong result again with revenue growth of 44% year-on-year to CN¥33,5 billion.

Advertising, with year-on-year growth of at least 65%, and mobile games, up by at least 26%, are a big driver. However, social networking remains an important contributor at 23% of total revenue and could grow by 41% year-on-year.

I also estimate earnings growth of 30% year-on-year to CN¥10,35 billion with EPS up from CN¥0,85 to CN¥1,11 for Q2.

For the year to December 2016, I maintain my estimate of adjusted EPS of CN¥4,57 for growth of 31%. Three compound growth remains at 28%.  

I estimate Tencent earnings to be the equivalent of $6,5 billion in 2016 of which Naspers shares in $2,18 billion – equivalent to R29 billion at R13,40/$. Assuming a total dividend for 2016 of $700 million Naspers would share in that to extent of R3,16 billion.  

The Tencent share price has been very firm of late and has moved from under HK$140 at the start of 2016 to HK$191 currently.

However, given the run-rate on earnings the price earnings ratio is not overly stretched for a company growing earnings at 30% plus. The forward 2016 PE ratio is 35,8x whilst the forward PE ratio to December 2017 is 28,2x.

The rand has strengthened from over R15/$ in June to R13,40/$ at the time of writing. However, I have valued Naspers using R14/$ for the past few months to allow for a margin of safety. With the Tencent share price having moved from around HK$170 to over HK$190 there is almost no impact of consequence on my fair value in rand.

I am therefore keeping fair value at R2200 per share with the target price maintained at R2500.

Trading Buy and Portfolio Buy maintained.

Kind regards,

Mark N Ingham