imaginima
The following segment was excerpted from this fund letter.
Naspers and Prosus (OTCPK:PROSY) recently published their annual results for the fiscal year ended March 2022. We have long harped on Naspers’ deep discount to its underlying sum of the parts. Earlier this year, the discount dipped as deep as -70%.
I believe part of the discount is due to the market voting with its money against management who have overseen massive value destruction by
- implementing the complex cross-holding Naspers-Prosus structure at exorbitant investment banker fees,
- continuing to invest Tencent proceeds into loss-making new ventures, and iii) being rewarded with eyewatering remuneration packages in the process.
Given this, the recent presentation’s most important message was the signaling that the group is clearly changing course towards unlocking the discount and focusing on shareholder returns.
Naspers/Prosus announced that they are embarking on a massive share repurchase program, whereby they gradually sell shares in Tencent and use the proceeds to buy back Naspers and Prosus shares for as long as the discount persists. The message was clear that they will do “whatever it takes” for “as long as it takes.”
Here is CEO Bob van Dijk responding to a question on the matter:
“…on the last question around capital allocation, I think there are a few considerations here. First of all, given where the discount is, a buyback at scale makes a lot of sense. That’s why the board approved it and that’s why we’re going to allocate this big bazooka program as long as it takes. But I think the world has also changed in the sense that because of rate increases we see the cost of capital go up. I think that’s a reality that just makes the bar higher particularly for external M&A. I think it also means that we need to control our costs, because spending money is more expensive than it was previously. I think the final thing that it means for us, the way I see the next few years, is a period to get our e-commerce business to profitability. That’s the path we’re on.”
The remuneration policy for 2023 is evidence that the board has had enough and is putting its foot down. There will be no increase in base salary for top management in 2023 and no Long Term Incentives (i.e., no share-based compensation for the year). The only potential performance bonuses relate to Short- Term Incentives, 63% of which are based on closing the discount to NAV. Furthermore, the remuneration policy states, “we believe that a discount reduction only deserves CEO and CFO remuneration if the reduction holds.
The above-mentioned special incentive will be held in reserve until 31 March 2024 and remeasured against a claw-back provision.” As shareholders, we are very encouraged to see this alignment codified. We have been acquiring Naspers as it has gotten increasingly cheap over the past year. This is the catalyst we have been waiting for. Although Naspers’ discount has improved substantially since the announcement, shares are still trading at a discount of roughly -50%. There is still a long way to go.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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