Prosus and Naspers share price reacts to Tencent sale
In this article we break down and analyse the recent news from Naspers’ primary investment company Prosus, regarding the sale of Tencent shares.
What has happened?
Prosus has announced the placement of 191.9m shares in Tencent. The placement is roughly 2% of the group’s current holding of Tencent and reduces the Prosus stake from 30.9% to 28.9%. The group is however committed to not selling any more of its Tencent share holding for at least the next three years.
Why is Prosus selling Tencent shares?
The sale is to raise roughly $14.5bn for Prosus and is aimed at increasing the group’s financial ‘flexibility’. The funds raised will improve working capital with some suggestion (not confirmed) that there could be further share buybacks to follow. Prosus has been investing aggressively into the food delivery business and further investment into this space is likely. In this regard iFood Brazil becomes a suggested acquisition target. The group has also been looking at early adoption and investment in industries such as education.
Why has the Prosus & Naspers share price reacted negatively?
The food delivery business is one which requires a high level of capital to maintain and develop and is perhaps partly the reason for the initial negative reaction to the news. Investors will be weighing the value of a having a lessor stake in a proven winner such as Tencent relative to a higher stake in cash intensive businesses such as the food delivery business.
Are Prosus and Naspers still a good investment?
Despite the placement, an investment in Prosus and or Naspers remains largely an investment in the success of Tencent Holdings. While remaining a leader in the online gaming, internet and entertainment space, Tencent remains subject to regulatory risk in both Asia and the US.
The following analyst estimates are a consensus compiled form Refinitiv data:
| Company | LT Broker rating | No. of brokers | LT target price | Share price | Discount to LT target price |
|---|---|---|---|---|---|
| PROSUS | Strong Buy | 4 | 2200 | 1,640.00 | -25.45% |
| NASPERS-N | Buy | 12 | 5157 | 3,488.00 | -32.36% |
The above share price, long term (LT) target prices and broker ratings are as of the 8th of April 2021.
Prosus share price: technical analysis trading view
The share price of Prosus looks to have reversed off trend line support. The price reversal is accompanied by a sharp move out of oversold territory. The stochastic indicator is also showing a bullish divergence with the price.
These are considered positive indications in technical analysis terms with 1740 the initial upside resistance target, followed by 1826. Traders who are long might consider using a close below the low at 1605 as a stop loss indication for the trade.
In summary
- Prosus NV is selling 2% of its holding in Tencent
- The roughly $14.5bn in funds received from the sale expected to aid working capital, fund future acquisitions and possibly further share buybacks
- The long term consensus rating on Prosus remains a Strong Buy
- The long term consensus rating on Naspers remains a buy
- The short term technical view on Prosus shows positive divergence in an upward trend
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