Naspers, Prosus hit by earnings decline, to start selling off Tencent stake to fund share buyback

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  • Naspers and Prosus have initiated a plan to slowly sell off parts of its stake in Chinese tech giant Tencent and buyback its own shares.
  • This comes as Naspers and Prosus reported a significant drop in core headline earnings due to 'a period of slower growth at Tencent'. 
  • The group also realised approximately $3.67 billion through the disposal of its shares in

Naspers and its subsidiary Prosus will slowly be selling off parts of its stake in Chinese tech giant Tencent in order to fund an open-ended programme to repurchase its own shares.

This comes as Naspers reported a 40% drop in core headline earnings to $2.1 billion, and Prosus a 23% reduction to $3.7 billion for the year ended March 31, due to "a period of slower growth at Tencent as it adapted to regulatory changes in China." Group trading profit declined by 10% to $5 billion, while it reported group revenue growth of 24% to $36.7 billion. 

"The board of Naspers intends to declare the dividend as soon as practicable," the group said in a separate update. 

A crackdown on technology companies in China has battered Tencent, and this in turn has weighed on Naspers and Prosus, who currently have a 28.9% stake in the company after selling 2% in 2021. Naspers share price is currently down nearly 24% since January, and fell over 35% since June 2021.

Naspers was however up over 11% in early Monday trading, while Prosus rose over 22% before levelling off at nearly 12%. 

The group said that like other tech companies it faced significant macroeconomic and geopolitical headwinds, leading to highly volatile capital markets in the latter part of the financial year.

READ | Naspers loses R100 billion in value in a single day as Tencent woes bite

"The combination of the war in Ukraine, higher inflation and rising interest rates drove up the cost of capital and increased uncertainty," it said. This combined with other factors including a decline in the valuation of tech companies globally resulted in a decline in the group’s net asset value for the first time in years.

"The discount to the group's sum of the parts increased to an unacceptable level. Taking substantive action to reduce the discount is a priority." This action includes its share repurpose programme.

"Prosus will begin selling small numbers of ordinary shares in Tencent Holdings Limited held by the group regularly and in an orderly manner, while concurrently purchasing Prosus shares and Naspers shares pursuant to the repurchase programme, as long as the group’s trading discount to net asset value is at elevated levels," the companies said.

The programme is expected to result in the sale of Tencent shares, and buyback of Naspers and Prosus shares on a daily basis.

The Naspers and Prosus boards said they still "have great confidence in Tencent's long term prospects", and said the programme will result in the group increasing its exposure to Tencent on a per share basis.  

"At elevated levels of trading discount, however, the Naspers board and Prosus board believe that repurchasing Prosus shares and Naspers shares and monetising part of the group's Tencent holding in order to implement the repurchase programme, is in the best interests of Prosus, Naspers and their respective shareholders."

The group said Tencent was supportive of the withdrawal by Prosus of its voluntary restriction on the sale of its Tencent shares.

Naspers and Prosus CEO Bob van Dijk said the group expects the repurchase programme to significantly increase net asset values per share.

"It will also rebalance our asset base towards our fast-growing non-Tencent assets, whose value we expect to increase overtime, while retaining exposure to Tencent’s significant value creation potential," he said.

"We will continue to execute our long-term strategy to build valuable consumer internet businesses to deliver sustainable returns over the long term."

The group said that as it initiated the buyback to "unlock value for shareholders", it was also working towards maintaining an investment grade.

"In this regard, shareholders are referred to the announcement released by the group today outlining that it has realised approximately $3.67 billion through the disposal of its shares in and that such proceeds are to be retained by the group for general corporate and liquidity purposes."

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