Johannesburg - Many market analysts have set lofty share price targets in excess of R400 on media group
Naspers [JSE:NPN], but not all agree the tag is justified.
Reporting full-year results on Tuesday, South Africa's largest media company delivered a 10% increase in operational profit to R5.4bn on the back of a 5% increase in revenue to R28bn. Much of this was driven by strong revenues from its internet businesses, including Chinese firm Tencent.
Tencent's contribution to Naspers core headline earnings surged by 76% to R2.1bn.
In recent weeks, analysts have been upping their 12-month price targets for the group, with stockbrokerage Barnard Jacobs Mellet (BJM) saying the share was worth "in excess of R420" if it values Tencent at current market value. Naspers is trading around R261 a share at the moment, indicating that the experts see a lot of upside to the counter.
Nedbank Capital also announced last week that it maintained its "buy" recommendation with a price target of R390, while Citigroup and Deutsche Bank are targeting prices of R400 and R375 a share respectively.
However, not everyone is convinced, especially after Chinese regulatory authorities announced they would be cracking down on some of the virtual currencies used by various online platforms, including Tencent.
"At this stage the share price is telling you something," said Francois du Plessis of Vega Asset Management. He said that while he was still comfortable holding the Naspers shares, he was watching developments in China.
"The way the Chinese authorities communicate changes to regulations is not always that clear to foreigners," he said, pointing to the sell-off of Naspers shares last week after the virtual currency and ownership issues of Chinese companies were raised. Naspers dropped by about 4% on the news.
Sasha Naryshkine from asset management firm Vestact also said he was wary of the valuations attributed to Tencent and Naspers. "It [Naspers] is one of those difficult stocks to value," he said.
Naryshkine added that while investment firms had analysts on the ground in China, many still did not have a clear idea of what the Chinese regulators, or even consumers, would do. This made a call on Tencent's prospects difficult.
In China, Tencent trades on a price to earnings multiple of around 40 times, in contrast to peers such as Alibaba.com Ltd (69 times earnings) and search engine Baidu.com (97 times).
While Deutsche Bank has a "buy" recommendation on Naspers, it has recently issued a "hold" recommendation on Tencent. It said the company was "fairly valued" at present levels and expected a weak gaming pipeline in 2010 as well as a lack of readiness in China's 3G infrastructure, while Tencent's e-commerce and search businesses were still in an early stage of development.
By midday on Tuesday, shares in Naspers were off 7c to trade at R261.82.
- Fin24.com
Fin24.com is a Naspers subsidiary.