From meal delivery to fintech: investment company Prosus has a portfolio of around 85 companies. But actually it’s always about Tencent. Logical, because the Chinese tech giant represents 80 percent of the value of Prosus, currently 120 billion euros.
That may now change. Last week, at the presentation of the annual results, Prosus announced that it would sell Tencent shares and use the proceeds directly to buy back its own shares. A plan with the aim of raising the stock price.
Prosus has long struggled with a disappointing course. There has been talk of a discount that is too great: the stock market value of Prosus is much lower than the value of the total portfolio. That discount has increased to no less than 60 percent in recent months. An “unacceptable level”, according to CEO Bob Van Dijk in the annual report.
A year ago, Prosus sold 6.5 percent of its Tencent shares, reducing its stake in the tech giant to 28.9 percent. “That transaction was nice, but it did not have the desired effect on the price of Prosus,” says Joren Van Aken, analyst at Degroof Petercam. “The problem was that a lock-up period was agreed with that sale.” Prosus promised that it would not sell additional Tencent shares for three years after this transaction. “Then you actually fix the value for three years.”
Interestingly, Prosus has now lifted this lock-up period in consultation with Tencent. Van Aken: “Prosus is of course also a large shareholder for Tencent, you want to keep them satisfied.” It is unclear exactly how many shares Tencent Prosus wants to sell, and the buy-back program also has no limits in terms of amount and period. The plans seem to be working immediately: the share price shot up 15 percent this week. That brings the current discount below 40 percent.
Another notable move by Prosus is that the variable bonus of the top in the coming years depends mainly on whether management succeeds in getting the discount down and keeping it low. According to Van Aken, this is a way of encouraging management not only to look at short-term solutions.
Van Aken finds it understandable that investors always look to Tencent when it comes to Prosus, but he is also keeping an eye on two other companies within the Prosus portfolio at the moment.
The first is Avito, a Russian advertising website. It was discredited because of advertisements in which soldiers were recruited for the war in Ukraine. Prosus distanced himself from Avito and said he was looking for a buyer for the shares.
Van Aken: “Prosus still states that Avito is worth 1.6 billion, but it seems impossible to me at the moment to sell shares in a Russian company in the Western world. In my opinion, Avito should therefore be in the books at 0 euros.”
The other concern is Byju’s, an Indian tech company that offers educational videos. Prosus owns about 10 percent of Byju’s, estimated by Van Aken that it is worth 2.2 billion dollars. He sees “a few red flags.” For example, the 2021 annual accounts would still not have been approved by the auditor. In addition, famed shortseller Fraser Perring accused Byju’s recently of scam†
Many investors do not seem to find these kinds of developments that interesting for Prosus, says Van Aken, because the value is mainly in Tencent. “But Prosus still has the ambition to better diversify the value of the portfolio, from 80-20 to 60-40 for example.”
A version of this article also appeared in the newspaper of July 4, 2022