For the longest time MultiChoice has been the “cash cow” for tech and media giant Naspers. But now Naspers has decided to list its MultiChoice business separately on the JSE, unbundling its full stake in the video entertainment business.
“Naspers will be disinvesting from MultiChoice by unbundling its full stake to its shareholders,” said Sanlam private wealth analyst Renier de Bruyn. “After the unbundling, Naspers will no longer be involved in the management of MultiChoice, which will function completely on its own.”
Naspers shareholders will then get the equivalent of their Naspers shares in the newly formed MultiChoice Group, which will include pay-TV subsidiaries MultiChoice South Africa (in which Naspers had an 80% stake) and MultiChoice Africa;online-streaming site Showmax Africa; and digital security platform Irdeto.
The company’s 2018 financial statement shows that its South African video entertainment business (MultiChoice, M-Net, SuperSport and Showmax, among others) accounted for R522-million, contributing to 27% in free cash flow for Naspers. This figure had fallen from the previous financial year where it accounted for R578-million or 58% of the company’s free cashflow.
De Bruyn said MultiChoice last year accounted for about 5% of Naspers’s total valuation, which was down to 4% this year, adding that while MultiChoice may have been the largest source of Naspers’s cash flow, its stake in China’s Tencent was worth more in terms of the company’s valuation.
So why is Naspers unbundling its 80% stake in MultiChoice and listing the video entertainment business separately on the JSE?
Naspers, which accounts for about 20% of the market capitalisation of the JSE, mainly through its share in Tencent, has been under pressure to unbundle some of its assets.
According to De Bruyn, Naspers is too big for the JSE: “Naspers is trading at a large discount to the fair value of its assets. Unbundling will partially help to unlock this discount.”
With Naspers having outgrown the JSE, it has prevented local asset managers from buying more Naspers shares, given their already high portfolio exposure to the share, he said.
Currently Naspers shares trade at R3 195. But De Bruyn said that the fair value of its assets are more than R5 000 a share (with Tencent valued at around R4 100, MultiChoice at more than R200 and its other assets and cash worth another R800).
De Bruyn said Naspers would not have been able to unbundle MultiChoice in the past because “it was reliant on its cash flow to support new ventures in its portfolio”.
Following Naspers’s recent sale of part of its stakes in Tencent and electronics retail company Flipkart, which saw it realise a total of about $12-billion, Avior equity analyst Charl Wolmarans said this amount will cover the short-term trajectory after Naspers completes the listing of its video entertainment business separately in early 2019.
Unbundling MultiChoice indicates that Naspers’s other business interests “are becoming more self-sustaining”, said Wolmarans.
Naspers’s classifieds business, known as OLX, has also turned profitable, said De Bruyn.
MultiChoice’s value has been unappreciated in the full value of Naspers, group chief executive Bob van Dijk told the media during a conference call on Monday. Naspers closed 0.83% down on Tuesday following the announcement.
The company’s video entertainment business grew by 13% to 13.5-million households, with revenue and trading profit increasing by 8% and 29% respectively.
In its 2018 financial report, Naspers said the focus of its video entertainment business would remain on driving subscriber growth. Although it will be listing this business separately, it is expected that this focus will remain for the new MultiChoice Group.
Currently, 60% of the video entertainment’s total subscribers “remains at lower-end”. The cheapest DStv package a consumer can buy is the DStv Access, priced at R99 a month, while the more expensive DStv Explora goes for R949 a month.
The group’s big earner is live sport, and it is one of the factors that gives it an edge over other online streaming platforms such as Netflix and Hulu, Google Play Movies & TV, Amazon Prime and Apple TV, to name a few.