Earning were released on the 22nd. Here is part of Morgan Stanley's report which maintains it's overweighed position for Naspers:
1st Take: Strong revenue growth,
weaker profits than expected
Naspers results show strong revenue growth in all the core
eCommerce verticals, key to the value of these businesses
which for the most part are not yet monetizing. Trading profit
shows a material improvement yoy but falls short of our
expectations.
We focus on Pay TV and eCommerce since Tencent, Mail.ru, MakeMyTrip and
Delivery Hero have already reported. For headline numbers on a consolidated and
economic profit basis see tables below.
Strong revenue growth...
36% LfL growth in eCommerce is close to the +38%
seen in H1 after accelerating from 27% last year. Given the early stage of these
businesses revenue growth is key. All of the eCommerce verticals have been
performing strongly with classifieds +35%, payments +37%, eTail +36% (with
Takealot organic growth +57%, eMag +34%, the group number still includes
Flipkart) and food delivery +121% (iFood orders +116%). Pay TV revenue of €3.7bn
was +8, 3% below our expectations.
...but profits do come in below where we expected them,
with a consolidated
trading loss of $(41)m vs. our expectation for $119m. We would point out
thought that it is still a significant improvement from the $(214)m last year and
the absolute yoy improvement was greater than in H1 ($148m in H2 vs. $25m in
H1). By division, trading profit for Pay TV is actually a bit better than what we
forecast ($369m, 4% better than MSe €356m) but we were expecting a larger
improvement in eCommerce ($(673)m vs. $(495)m. The gap is mostly explained
by greater losses in eTail at $(270)m vs. MSe $(201)m (which is fine because with
the sale of Flipkart a lot of the losses go away) and classifieds at $(114)m vs. MSe
$(29)m (which is not so good because, whilst showing a significant yoy
improvement from $(328)m, it also shows more losses in H2 at $69m than H1 at
$(45)m). Profitability at OLX declined sequentially to $8m (was $55m in H1) but
losses at Letgo declined to $(77)m in H2 from $(100)m in H1.
Valuation methodology and risks
NPNJn.J
Naspers OW, PT ZAR5400
Our ZAR 5400 price target is based on a SOTP. Listed associates (Tencent, MakeMyTrip,
Mail.ru and Delivery Hero) at MS target prices. Holding discount of 25% applied to
associates. $14bn for Core Internet including $8.2bn for Classifieds based on peer group
EV/EBITDA target multiple approach. We view a pullback at Tencent as the single most
important risk. Earnings risk remains in the event of a global macro slowdown as well as
accelerated investment in e-commerce and new ventures. SSA Pay TV macro
environment could continue to worsen driving losses higher.
Risks to PT:
1) We view a pullback at Tencent as the single most important risk. 2)
Earnings risk remains due to the threat of a global macro slowdown as well as
accelerated investment in e-commerce and new ventures 3) Competition is accelerating
in social media, gaming and Pay-TV in Africa. 4) SSA Pay TV macro environment worsens.
5) Positive free cash flow fails to materialise in eCommerce.
Listed Associates:
Tencent Holdings (covered by Grace Chen, HKD508)
We derive our HK$508 price target using a sum-of-the-parts approach, including a
HK$494/share DCF value for the core business and HK$14/share for associate
investments. Our key assumptions for the core business DCF model include a 10%
discount rate and 3% terminal growth rate. Listed associates are valued on current
market cap, while unlisted associates are valued on carrying value provided by the
company.
Risks to Achieving Price Target: Unfavorable regulatory developments; a macro
slowdown in China; intensified competition in social networks; higher-than-expected
investments in content.
Mail.ru (covered by Miriam Adisa, $38)
We use a SOTP valuation to derive our PT of $38. We value the core social media
platforms using a DCF (assuming a WACC of 11% and terminal growth rate of 5%). We
value all other assets using a peer multiple approach, including a c$600m valuation for
Delivery Club ($3 per share).
Key risks to PT: Lower advertising revenue; lower monetisation of social networks;
greater competition; regulatory or political intervention; and FX.
MakeMyTrip (covered by Parag Gupta, $50)
We arrive at our price target of $50.00 using the probability-weighted average of our
risk-reward scenario values. The risk-reward scenario values are derived from a
3
discounted cash flow methodology. Our DCF assumptions are 15% for WACC and 5% for
terminal growth rate.
Downside risks to our price target: Competitive intensity remains high. Weaker operating
leverage. Rupee depreciation vs. USD.
Delivery Hero
Our Delivery Hero price target is €39. We use SOTP-based DCF with 8% WACC in
developed markets and 12% in emerging markets. Our long-term growth rate is 2.5%.
Most of the value is tied up to terminal values given the lack of near term profitability.
Downside risks to our price target: c.30% of revenue comes from Germany and Korea,
two competitive markets where marketplace margins might not exceed 30% if no clear
winner emerges. We have reasonably low visibility into the operations of the 42 markets
and local leadership is key to understanding the profitability and value of these
businesses. The company is still in early-growth stage so losses could be volatile. It
could make poor acquisitions. |
