Will Naspers unbundling Multichoice unlock value

Naspers has recently announced its intensions to unbundle the Multichoice business from the group as the company looks to focus more on its e-commerce/internet businesses.

Multichoice Listing

The company is looking to separately list the Multichoice business as “The Multichoice Group Ltd” in 1H2019. The separately listed company will include Multichoice South Africa (and its subsidiaries), Botswana, Namibia, Africa as well as the African division of Showmax.

FY18 results showed the Video Entertainment business (Multichoice) to have produced revenue of $3.6bn (8% year on year growth) and a trading profit of $369m (29% year on year growth). The Multichoice business is extremely cash generative and investors in the unbundled share might hope to be remunerated with a healthy yield offering, in terms of dividends. A recent JP Morgan report has suggested that the Multichoice Group could find a listed value of around $8bn (roughly R112bn), which if realised would see the company finding a place well within the Jse Top40 Index.

Satellite vs Online Television

The landscape of Video Entertainment industry is however changing as internet speeds increase and the world of online video streaming disrupts the conventional satellite television model (DSTV). The online entertainment industry is competitive with companies such as Netflix making inroads into the African market and the likes of Disney looking to launch their online subscription offering next year. DSTV maintains the monopoly in terms of satellite television subscriptions in Africa, but will need to migrate subscribers to online services (such as Showmax) over the longer term. For effective migration, content is key and localised content is perhaps an avenue the group might consider pursuing for a sub-Saharan African audience. The sport offering has kept a captive South African audience, in terms of the DSTV subscription base, and could be an interesting offering should it be moved to a separate online offering.

Unlocking Value

The separation of the Multichoice business is expected to unlock value for Naspers’ shareholders and possibly reduce the company’s very large discount to net asset value (currently around 40%). Multichoice forms part of what investors have previously called the “rump” of Naspers, as it has carried little recognition in terms of the Naspers share price and perhaps the unbundling can help the underlying value now be realised.

The initial market reaction to the news has been positive as it brings investors closer to one of the desired outcomes, namely more direct access to a Tencent Holdings investment. It is expected that Naspers will look to further unbundle parts of its business holding in future. One such consideration would be the Media24 business which is less aligned to the e-commerce and internet businesses.

Broker Ratings

As of the 19 of September 2018 the average broker rating for Naspers, from a Thompsons Reuters poll of 14 analysts suggest that the company is a “Strong Buy”

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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