Tencent shares slump after biggest shareholder trims stake
Gaming giant Tencent’s shares stumbled after major investor Prosus trimmed its shareholding at a discount to Wednesday’s close.
- Tencent Holdings Ltd (HKG: 0700) share price dips to HK$619 per share
- Its largest shareholder, Prosus, sold a 2% stake for US$14.6 billion
- The Chinese company ‘respects and understands’ the stake sale
- Analysts had an average 12-month target price of HK$787.22
- Buy and sell Tencent shares with an IG account
Tencent shares lose ground
Shares of gaming and social media heavyweight Tencent inched down by another 0.2% to HK$619 as of 13:36 SGT on Friday (09 April 2021).
The Hong Kong-listed counter had sunk 1.5% to close at HK$620 on Thursday, after its top shareholder announced it had sold off some Tencent shares at a discount.
Out of 68 analysts, 63 recommended ‘buy’ on Tencent and five said to ‘hold’. Their average 12-month target price stood at HK$787.22 as of Friday, Bloomberg data showed.
In the past week, research teams from Nomura, Haitong International, Daiwa, Bernstein, Credit Suisse gave ‘buy’ or ‘outperform’ calls, targeting HK$780, HK$966, HK$870, HK$880, and HK$800 respectively.
CICC, meanwhile, rated the stock ‘neutral’ with a HK$682 target on Thursday.
Why did Tencent’s major investor cut its holdings?
Amsterdam-listed technology investor Prosus NV on Thursday said it sold a 2% stake in Tencent overnight for about US$14.6 billion.
Prosus sold close to 192 million shares for HK$595 each, trimming its shareholding to 28.9% but remaining Tencent’s single largest shareholder. The deal price was a 5.5% discount to the Wednesday closing price of HK$692.50 per share for Tencent’s stock.
Koos Bekker, chairman of Prosus, said the Netherlands-based company needs to ‘fund continued growth in our core business lines and emerging sectors’, even though its belief in Tencent and the latter’s management team is ‘steadfast’.
Prosus, a division of South African investment firm Naspers, plans to use the proceeds to boost its war chest for new e-commerce deals. It already owns interests in fintech and digital payments businesses as well as food-delivery platforms.
Tencent’s chairman Pony Ma noted that the Shenzhen-based company ‘respects and understands’ the investor’s decision to reduce its stake.
Prosus pledged that it will not decrease its shareholding further for at least the next three years. Bloomberg Intelligence analysts noted that this commitment should allay Tencent investors’ fears of a selldown in the Hong Kong-listed firm’s shares.
What will drive Tencent’s long-term growth?
Deutsche Bank analysts wrote that Tencent, which owns China’s biggest messaging app WeChat, has shown it is able ‘to continuously deliver sustainable growth across all of its three business segments’.
Maintaining a ‘buy’ call with a higher target of HK$705, they remained ‘very confident’ in its growth momentum, supported by upside catalysts such as its upcoming League of Legends and Dungeon & Fighter mobile games.
There are also monetisation upsides from the ‘sharply increasing’ popularity of video accounts and mini programmes, Deutsche Bank added.
Meanwhile, Ampere Analysis’ Chundi Zhang said Tencent is investing in competitive gaming or e-sports for the long haul, as it ‘breaks the boundaries between different businesses, from licensing to sponsorships and ticket sales’.
Trade stocks, indices, commodities and more with IG
Create an IG account or log in to your existing account to get started now.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Explore the markets with our free course
Learn how shares work – and discover the wide range of markets you can spread bet on – with IG Academy's free ’introducing the financial markets’ course.
Put learning into action
Try out what you’ve learned in this shares strategy article risk-free in your demo account.
Ready to trade shares?
Put the lessons in this article to use in a live account – upgrading is quick and easy.
- Trade on over 13,000+ popular global stocks
- Protect your capital with risk management tools
- React to breaking news with out-of-hours trading on 70 key US stocks
Inspired to trade?
Put your new knowledge into practice. Log in to your account now.
Live prices on most popular markets