An appetite for the internet
Naspers has made a firm offer of R13,2bn for the entire share capital of Tradus, an internet group that operates online trading platforms and related internet services across eleven European countries.
The offer price of £18 a Tradus share represents a fairly generous premium on the Tradus share price. According to the Naspers announcement, the offer is a premium of “19% to the mid-market closing price of 1,510 pence [a] share on 6 November 2007, the last business day prior to the announcement by Tradus that it had received … a potential offer and 37% to the average mid-market closing price of 1,317 pence per share for the period 18 October 2007 to 6 November 2007.”
The generosity of the price, particularly at a time when most analysts and economists expect the world economy to begin slowing, gave traders pause. Naspers shares were down over 8% by lunchtime, even though the offer is not large enough to require Naspers’ shareholder approval.
Naspers’ offer comes in at a price to earnings multiple of just over a hundred times; Tradus’ earnings per share for the year ended March 2007 were 17,2 pence a share. The purchase is basically a leap of faith by Naspers.
Essentially, it is a bet on the future economic success of Eastern Europe. Tradus provides a service similar to e-Bay’s; it facilitates online trading between buyers and sellers. Tradus’ main market is Poland, and it also has operations in Bulgaria, the Czech Republic, Hungary, Romania, Russia, Slovakia and the Ukraine. This fits into Naspers’ strategy of occupying internet space in major emerging markets. The group already holds internet interests in Russia, China, Africa and India.
What Naspers is hoping for is access to the Internet Holy Grail: transaction revenue. Transaction revenue is basically revenue generated when transactions occur online. It’s the oldest idea in the book; the bank will facilitate the transfer of money between you and your landlord, for a small fee. Likewise, Naspers plans to facilitate transactions between Eastern Europeans, for a small fee. Naspers’ current media model relies mainly on advertising revenue, which is highly subject to economic cycles. The group is hoping to develop sources of transaction revenue that will drive the business forward.
The proposed transaction illuminates two aspects of Naspers’ strategic outlook. First, the transaction will enhance the group’s internet portfolio, and Naspers has said many times that it believes that the internet is the future of the media. Second, it further broadens Naspers’ international footprint, another avowed desire.
Naspers is rapidly becoming a very international company, although the vast majority (over 75%) of its profits is still made in South Africa. Like Standard Bank (JSE:SBK), which has invested widely through the developing world, Naspers believes that its future lies in developing high-growth high-margin markets in other emerging countries. South Africa, with its relatively small population and inflexible economy, is not big enough to sustain the ambitions of such companies; they are moving up into Africa and out into Asia and Eastern Europe, applying the lessons learned doing business in SA to these new markets.
Naspers is betting the ranch on becoming a globalised, internet-driven media organisation. It has divested itself from brick-and-mortar assets, selling its chains of academic bookstores and its educational arm, which included a number of physical schools and colleges. It plans to evolve into a lean, virtual, media group with a focus on emerging economies.
The big question is, are investors buying into this vision? The sharp decline in the share price today following the announcement of the Tradus offer is somewhat disconcerting in this respect. The share has taken a beating, and is now trading at a forward PE ratio of just over 16 times, down from today’s PE of almost 19 times. However, analysts that follow the stock still have it listed as a buy, and Naspers has delivered value growth for many years. Perhaps the new, sleek, online Naspers will surprise on the upside.
Loading ...