Dear reader,

Welcome back to FarSight AI, by father-and-son team, Rob and Matt Worthington-Smith.

This week, we bring you a gigantic company listed on the JSE, Naspers, with its subsidiary, Prosus, appraised by our FarSight AI model.

We also have analysis of a further three companies in the property sector: Growthpoint, Fortress and Hyprop.

First, what is the difference between Naspers and Prosus?

Naspers, founded in 1915 as a South African newspaper publisher, began the 21st century with the media-focused company Media24 as its foundation, while expanding into e-commerce. Around 2001, Naspers invested $32 million into the fledgling Chinese tech firm, Tencent, acquiring a 46.5% of the business. This stake, now worth billions, became a cornerstone of its growth.

Huge dividends from Tencent emboldened Naspers to become a venture capital business, investing in e-commerce (Takealot), classifieds (OLX), and fintech (PayU). The goal was to hit another home run, like Tencent.

Unfortunately, the market didn’t take the same view, and all Naspers’ venture investments, taken together, were consistently valued at zero. Some of the reasons for this were the complexity of valuing Naspers’ portfolio, concerns with Naspers’ A-class share structure (giving Koos Bekker a controlling vote), concerns with South Africa becoming hostile to free enterprise, and the uncertainty around how share ‘ownership’ of Tencent is defined and controlled in China.

In an attempt to unlock value, Naspers spun off Prosus in 2019, listing it as a subsidiary (in which it retained a 73.8% shareholding) on the Euronext Amsterdam. Prosus took over Naspers’s international internet assets, including the Tencent stake, and focused on high-growth sectors like edtech (Udemy) and e-commerce (eMAG).

When this had no effect on value, the companies engaged in a share swap in 2021 aimed at increasing Prosus’ free float (publicly traded shares) and thus make it more investible internationally. However, the added complexity was confusing, and the scheme was unwound in 2023, removing Prosus’ 49% stake in Naspers. This means that if you own shares in Prosus, you have no interest in Naspers. However, if you own Naspers, you do also have a 57% stake in Prosus.

Naspers concentrates on local media and e-commerce, owning Media24 (newspapers and magazines) and Takealot, South Africa’s top online retailer. Its operations are mainly domestic, though investors also have exposure to Prosus.

Prosus is a global player, investing in high-growth internet businesses across 89 countries, from Europe to Asia. Its portfolio includes a major stake in China’s Tencent, plus fintech (PayU), edtech (Udemy), and e-commerce (eMAG). Prosus’ governance is clearer than Naspers’, following Dutch rules, and its global spread reduces reliance on any single market, though it faces regulatory hurdles, especially in China. While Naspers is a South African anchor, Prosus is a worldwide adventurer, diversifying risk but navigating complex global challenges.

Here are headline summaries for each company we’ve appraised this week:

Naspers (NPN): Strong leadership in purpose and financials, driving AI and e-commerce value. Cybersecurity, regulatory relationships, and accountability pose long-term risks.

Prosus (PRX): Clear purpose and strong financials, but superficial response to potential governance and environmental risks.

Growthpoint (GRT): Drives value in sustainable properties and governance, but vulnerable to office vacancies, load-shedding, and crime. An opportunity for leadership to enhance shareholder value.

Fortress (FFB): Deep engagement, innovative strategies, transparent reporting and robust governance show resilience in managing refinancing risks and capital efficiency.

Hyprop (HYP): Robust response to financial resilience and operational efficiency, with a focus on stakeholder trust and strategic disposals shows ability to navigate economic and infrastructural risks.

These five are added to our growing list of appraisals, now including:
Absa, ADvTech, African Bank, Anglo American, Ascendis Health, Aspen Pharmacare, Astral Foods, Blue Label Telecoms, British American Tobacco, Capitec Bank, Cashbuild, Cell C, Curro, Equites, Famous Brands, Fortress, Glencore, Growthpoint, Hyprop, KAL, Karooooo, Lighthouse Properties, MTN, Naspers, NEPI Rockcastle, Prosus, Resilient REIT, Reunert, SA Corporate Real Estate, Shaftesbury Capital, Sun International, Tharisa and Tiger Brands.

What should you be looking for in these appraisals?
Companies that both talk and walk a positive value-creation story across a simple narrative arc:

Purpose: Clarity of mission and talent-driven delivery
Foundations: Financial and operational resilience
Relationships: Trust with customers, partners, and society
Leadership: Competence and accountability

Matching the talk with the walk requires that we look for Intangible predictors of value - many of them not found in the financials. Finding these ‘tells’ in corporate communications is both an Art and an Intelligent craft, it’s FarSight with AI.

Here are some of the key ‘tells’ we extract from company reporting:

Leadership’s understanding of what impacts on shareholder value
Leadership’s commitment to solutions that drive and defend value
The usefulness and truthfulness of reporting on the most critical value-driving issues
Coherence of leadership’s response to critical issues
Far-Sightedness of leadership’s strategic thinking and action

Curious to see the results?

Visit Research

Thank you, in anticipation, for engaging with FarSight AI.

Finally, don’t forget to give us feedback so we can improve our offering.

Rob and Matt Worthington-Smith