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Naspers' new international investment company had a strong first day, with its share price trading at around 74.50 euro in Amsterdam, and R1 200 on the JSE by Wednesday afternoon.
This is considerably higher than the "reference price" of 58.70 euros (around R950) which was fixed for the share on Tuesday.
Also, unlike Naspers, Prosus will not trade at a discount to Tencent.
Prosus will have a market capitalisation of around R1.935trn following the recapitalisation, says Gryphon research analyst and portfolio manager Casparus Treurnicht. Its 31% stake in the Chinese internet giant Tencent is worth around R1.924trn.
Before the listing, Naspers traded at a 21% discount to its stake in Tencent. In Prosus, this discount has now been wiped out.
Still, while its market value now reflects its Tencent stake - the market has seemingly not placed any value on its other businesses.
Apart from Tencent, Prosus also owns stakes in more than 40 companies - including the global online selling platform OLX, the German food delivery group Delivery Hero, the Indian online food-delivery business Swiggy, the Indian online travel site MakeMyTrip, the biggest online classifieds and property platform in Russia, Avito, and Russia’s biggest internet company (with large gaming, social media and e-commerce businesses) mail.ru.
In South Africa, it owns AutoTrader and Property24.
Also, Naspers may now have a bigger discount problem. It saw its own share price slump to around R2 400 on Wednesday, and as a double holding company - it holds Prosus, which holds Tencent - its own discount to Tencent has widened to 24.5%, says Treurnicht.
The trader Karin Richards believes this may be a temporary situation:
As expected, every man and his dog is selling NPN and buying PRX. This will probably continue for some time yet. To the extent that the discount in Prosus has narrowed, it will (less about 5% to max 8% imo), flow back through to NPN once sanity returns and the selling abates.
— Karin Richards (@Richards_Karin) September 11, 2019
The other reason it decided to spin off Prosus is because Naspers was becoming too dominant on the JSE - it represented 20% of the market. Following the listing of Prosus, Naspers is down to 14% of the JSE, while Prosus represents 7%. Together, the companies will now be 21% of the JSE's all share index.
Implications for investors
Naspers shareholders were allocated a stake of around 27% in Prosus on Wednesday morning, issued as Naspers "M" shares. Shareholders have until Friday midday to decide whether they want to convert these shares to Prosus shares, or get more Naspers shares instead. They will receive the new Prosus or Naspers shares on Monday.
Those who choose Prosus have already seen a solid bump in their fortunes, but they will also have to take an immediate capital gains tax hit. According to Allan Gray, CGT will be paid on the full price of the Prosus share (18% of R1 200), because the Naspers M shares have zero value.
Prosus is trading higher than anticipated, says Wayne McCurrie of FNB Wealth and Investments. Early indications are that those who choose Prosus saw a "gain" of around 2% on the first day, says McCurrie, who sets it out as follows:
Say you owned 1 000 Naspers shares at the close of Tuesday:
At the closing price of R3 522.82 last night, you would own R3.522m in shares.
If you elect to receive the Prosus shares (which is the default option):
By Wednesday afternoon, your Naspers shares would be worth around R2.4m and your new Prosus shares would be worth R1.2m. Together, you now own R3.6m in shares – a gain of around R78 000, or 2%. But that's before capital gains tax.
If you elect not to take Prosus shares:
You will have 1 000 original Naspers shares and you should get an additional 369 "new" Naspers shares on Monday, says McCurrie.
Therefore you now own 1 369 Naspers shares at around R2 400 – equal to R3.29m. This is a 6% loss – but you don’t have to pay capital gains tax, unlike the Prosus holders.
"But remember the Prosus shares are in their first day of trading and the big volumes will only start to trade next week following the launch of the new Prosus shares," says McCurrie.
"The Prosus share price is still in a period of price discovery and any material pricing irregularities will be arbitraged out by the market.”
Earlier on Wednesday, Naspers indicated that so far the majority of investors opted for Prosus shares.
