Prosus = Tencent With A BIG DISCOUNT + MORE!!!

Duration: 10:31 1448 transcript words EN summary

Video summary

The video introduces Prosus as a compelling value investment opportunity that effectively provides exposure to Tencent Holdings at a significant discount, while also offering access to a diverse portfolio of other global assets. The presenter explains that Prosus was spun off from its parent company, Naspers, primarily to unlock value for shareholders in the South African market where the position had become too crowded. Today, Prosus holds a substantial stake in Tencent, alongside significant positions in companies like Meituan and Delivery Hero, as well as various unlisted stakes in food delivery, finance, and mobile experiences. The core investment thesis rests on the fact that Prosus trades at a deep discount to its net asset value, meaning investors are buying a collection of valuable assets for far less than their combined worth. A critical component of this investment strategy is the company's aggressive share buyback program, which has reduced the float by approximately 40% and significantly increased the net asset value per share. By selling Tencent shares to buy back its own stock, Prosus increases the number of Tencent shares held per existing shareholder, effectively delivering more value than just dividends alone. The presenter highlights that while there is always a risk regarding management's future actions or potential costly acquisitions, the current trajectory shows improving profitability with positive EBITDA and ramping up cash flows from non-Tencent businesses. This operational improvement suggests that Prosus is becoming self-sustainable and less of a drag on overall performance, creating a scenario where the discount could narrow over time, allowing investors to realize gains even if the underlying asset prices remain stable. However, the analysis also touches upon emerging risks and strategic shifts, particularly concerning Prosus's recent investments in artificial intelligence ventures like Alan, a French AI-powered tech business. The presenter notes that while these moves represent a pivot toward high-growth sectors, they introduce uncertainty compared to the traditional value-focused strategy of returning capital through buybacks. There is a concern that such expenditures could slow down the growth of net asset value per share or divert focus from simplifying the business model. Despite these risks, the presenter argues that Prosus offers a unique hybrid play: it allows investors to own Tencent at a cheaper price point while simultaneously gaining exposure to potentially profitable AI and delivery businesses that might be undervalued in the current market. In conclusion, the video positions Prosus as an excellent vehicle for value investors seeking to diversify their portfolios with a mix of established Chinese tech giants and global growth opportunities. The presenter emphasizes that the significant discount to asset value provides a substantial margin of safety, protecting investors if management makes questionable decisions or if the broader market sentiment toward China shifts negatively. With Tencent's dividend growth continuing to benefit Prosus shareholders and the company generating strong headline earnings from its diverse holdings, the investment case remains robust. Ultimately, the strategy relies on the discount narrowing through buybacks and organic growth, offering a path to double-digit value creation per share that is difficult to replicate by buying Tencent directly at current market prices.

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Good day, fellow investors. We did Tencent yesterday. You might want to check that video. Really interesting, fairly priced if you want to invest in Tencent directly. If you want to check Prosus out, which owns a 20-something percent stake in Tencent, it's trading at a discount, but is a different story when it comes to investing. Stay tuned into this video. Just for reference, I'm a researcher. I have a research platform. You will see a little bit increased research videos because I'm looking for value investments to add to my diversified portfolio. I have my personal portfolio really well set. Model portfolio also set up pretty good, but there can always be some changes there. And now I'm developing, broadening the diversified portfolio on the platform, looking for value stocks. If you want to check what I do, feel free to check my research platform. This is an ad for it, just discussing 21-day money-back guarantee, how there are three great buys now. Feel free to check them out. Let's start with Prosus. It's based on Tencent. Tencent, we said yesterday, likely 9-10% long-term returns, better returns in Chinese exuberant cycles, lower returns when China is uninvestable, but when China is uninvestable, you double down. Let's now go into Prosus. The stock follows Tencent. So, in the last 5 years, it did what Tencent did, but the situation is different. The P/E ratio is eight, even lower perhaps if you look at from another buyback perspective. They bought a stake in Tencent when it was nothing, so Naspers spun off Prosus to unlock more value because the position was getting too crowded for the South African market. They own some other stakes, Meituan, Delivery Hero. They needed to sell it at a lower price, but still getting some value there. Okay, the key is the discount. Asset value, debt, total net asset value is 153 billion dollars per share, 62 euros. Compare it to here, there is now a significant discount by buying Prosus towards the value of the stakes. However, this is not just Tencent, there are other listed stakes, and there are other unlisted stakes that the management thinks are valued at 32 billion. Of course, as a value investor, we will always take this not at face value, but we can say maybe 16 billion in true value. It's getting positive, it's getting profitable. So, we are not at 153, but we are somewhere a little bit lower, let's say 130. Still good compared to the market capitalization, which is around 90 billion US dollars, something more if this is euros. So, if we look at Prosus, apart from Tencent that we discussed yesterday, they are investing into this food delivery, finance, mobile online experiences, things like that. They have partners, really big targets, but they have acquired Just Eat Takeaway, things like that. And for the first time, the EBITDA is significantly positive, and the cash flows already for the second year are ramping up, which means that this could be self-sustainable, and therefore perhaps not be a drag on the Tencent situation. Here is the bunch of the businesses I thought, Despegar, OLX, the European platforms selling cars, whatever, things like that. Growing the base, the EBITDA, the everything, the free cash flow on top of the free cash flow from Tencent's dividend, which means that with the buybacks, they say that they are giving more than Tencent gives just with the dividend, which is also correct. And we have discussed that a little bit later in the situation. But, with 8.3 billion in profits on a 90 billion market cap, the P/E ratio is much less than Tencent's. So, you can see here the headline earnings. Now, headline earnings improving also on the adjacent businesses, the non-Tencent contribution, which is very important. Good balance sheet, relatively low debt levels, high interest cover, nothing there often issue. Tencent is growing the dividend. The more Tencent grows the dividend, the more Prosus benefits. For now, they are creating value, but they are divesting some things, 91, Udemy, things like that, DoorDash. Okay. Returned capital, huge buybacks over time, high still buybacks. The plan to compare to other businesses, so that should also benefit. Here is the Naspers Prosus situations, what they own, which is a big bunch, and then we are now left with 23% of Tencent. So, just that stake in Tencent is 45 euros per share, which means you get everything else for free. But, okay, the discount has always been 30 to 50%. Why the discount? Because you never know what the management will do, crazy acquisition. There is some taxes if they just give you the shares. So, they are focusing on buybacks. It takes time to give value back. But, just a funny note, if you research a little bit using AI with Prosus, this is what AI Gemini gives you. This guy here, he was still concerned back then, this was a few years ago, about the discount, the management intentions, but things are changing. If you look a little bit at the last conference call, the CEO is happy how things are going, really growing, focusing on all the other businesses, more an operating CEO than the rest. But, they're doing their sales of Tencent, buying back shares, adding value like that because they're buying back Tencent at a discount. Token claw, agents doing their own thing. How will that work? We don't know, but okay. They say, "I expect and we will deliver billions in profits." If that happens, then Prosus is really a bargain. But, they're also doing something that you it's always questionable. 460 million invested in Alan, a French AI-powered tech businesses that has about what, a million people that use it. So, they paid $460 per customer or something like that. Perhaps they will integrate it, scale it, but this is always the risks, and that is something that we have to keep in mind. There was a satirical article discussing Prosus and the new emperor that is now all about AI clothes, that's going away from the buybacks, simplification of returning value, the French AI purchases, slow down the net asset value per share accrediting buybacks, which the former emperor had once set in motion, and look at the large catapult of mistaken direction with AI with weights on the company. You want either Tencent or AI. Perhaps they'll make a spin one day, who knows when it becomes more profitable, but Prosus has done the buybacks, and these buybacks reduced 40% of the float, and on top increased 80% the net asset value per share by owning more Tencent per share than before. How does that work? You sell Tencent shares, you buy back Prosus shares, delete the Prosus shares, and the ratio now of Tencent per share is higher. There's also the dividend multiplier effect with the buybacks on top of the dividend. Okay, but the important thing is never to trust AI. I just always check things, look for information, but I asked him to give me, okay, the annual value creation per share, 10 billion, and then per share 2 billion. Then I asked, "Okay, but the market cap is 80 billion. How can that be just two per share?" And then it adjusts to the situation. So, you must really know what you're doing when comparing to AI. If I look at this, 4.84 value creation, that's double digit here. If Tencent underlying keeps on growing, if also the other businesses keep on doing well and growing, this is something to really consider for a value investing by way to own Tencent, and unfortunately or fortunately to also get all those AI situations that are now profitable, and we have seen with Uber taking over some of those delivery heroes even perhaps truly valuable. Perhaps not at 30 billion, but maybe 10-15 billion, which is already something. So, a very interesting situation to process. You get Tencent a little bit cheaper plus a lot of that for free. There will always be something, there will always be the holding discount, but thanks to the holding discount, there is also a value accretive situation with the buybacks. If the discount narrows, you made your money. So, very interesting situation. Now, see how this fits your portfolio. For those who want to follow how this might fit my diversified portfolio, don't forget to check the research platform in the link in the description below. I'll be increasing the price by end of this year, but if you join now, the price is fixed for you forever.