Have you ever heard of Tencent or Delivery Hero? This question is likely to bring an affirmative grin to most people's faces. That's not surprising, after all, the Chinese Internet company and the German food delivery company are a thoroughly discussed topic at the stock exchange. The question of Prosus, on the other hand, is much more differentiated; only real market experts are likely to know what to make of this name. Yet the investment company holds large shares in the duo mentioned at the beginning and is itself even a member of the renowned EURO STOXX 50.
The "secret" Internet giant goes back to a spin-off of the South African Naspers Group. The latter had founded Prosus in the Netherlands in 2019 with the purpose of spinning off its Internet holdings into a separate company. The IPO then followed in September of the same year. With the listing in Amsterdam, Naspers hopes to gain recognition among international investors, among others.
With a market capitalization of around EUR 132 billion, Prosus is one of the largest companies in the Netherlands. But the current stock market value by no means reflects the intrinsic value of the company. The shares in Tencent alone - Prosus still holds 29% in the Internet giant after a partial sale in 2021 - exceed the market capitalization with EUR 135 billion. We can add around EUR 3 billion from Delivery Hero and just under EUR 2 billion from seven other listed holdings. As if that were not enough, Prosus also has stakes in unlisted companies. These are valued at EUR 37.8 billion as of September 30, 2021. All in all, this results in a net asset value (NAV), i.e. the sum of all assets, totaling EUR 174 billion. Consequently, Prosus shares are currently trading around one-third below their intrinsic value.
The high discount cannot be explained by weak operating results. On the contrary: at the half-year point of fiscal 2021/22 (March 31), the group reported strong growth. For example, commerce revenues accelerated by 53% to USD 4.2 billion and trading profit increased by 8% to USD 2.9 billion. In addition, Prosus increased its capital expenditure by USD 5.2 billion in the first six months to further accelerate growth. The majority of the money went into its core segments of food delivery, edtech, payments and fintech. "Prosus companies now serve more than two billion customers and we continue to build innovative products that change people's lives," CEO Bob van Dijk said proudly at the financial presentation.
In order to be able to enter into further deals, the Dutch company raised USD 5.25 billion via a bond issue at the beginning of the year. This means that the company now has significantly more financial scope for acquisitions. In recent weeks, for example, USD 20 million has already been invested in the Egyptian startup Thndr. In addition, Prosus secured shares in the Philippine fintech Tonik and the Indian B2B e-commerce platform ElasticRun for the first time. In total, the Dutch currently hold stakes in 80 companies operating around the globe.
Deutsche Bank analysts give Prosus' strategy a good report card in a recent study: "The focus of the investment company is on business models that rely on large consumer trends," and they therefore recommend the stock as a buy with a price target of EUR 125. The Frankfurt-based financial institution is not alone with its’ positive verdict, with local banking houses Credit Suisse and UBS also giving Prosus shares the thumbs up. According to Thomson Reuters data, 17 of a total of 21 research reports currently result in a buy recommendation. The average price target is EUR 108, which corresponds to a potential of 80%. From a chart perspective, however, there is (still) no sign of an upward trend. The title lost 17% since New Year's Eve alone, on a twelve-month horizon it is even 44%. Currently, the Prosus share is at least trying to bottom out in the range between EUR 60 and EUR 70.
In order for the new Softcallable Barrier Reverse Convertible to achieve its return target, the investment company does not need to succeed in a rebound. In fact, the product structure gives Prosus much more downside room to maneuver without jeopardizing the yield opportunity. The products, which are offered in CHF and EUR, each have a risk buffer of 41%. If the EURO STOXX 50 member leaves the barrier intact during the maximum term of 18 months, the maximum yield will be achieved. The coupons in both cases amount to 9.00% p.a. in CHF and 9.40% p.a. in EUR.
If you are aiming for an even higher yield and are willing to increase the risk by another underlying, you will find an adequate investment vehicle in the new Multi-BRC on Prosus and Tencent. It offers the prospect of an interest rate of 11.00% p.a.. The risk buffer amounts to a comfortable 41%, just as in the case of the aforementioned Singe-BRCs. For all three products, the issuer's soft callable feature allows early termination after half a year at the earliest.
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