Prosus: not just Tencent in a trench coat 

For years, Naspers, and more recently its cousin Prosus, have been trying to convince the market that the company is more than just its mega-holding in Chinese giant Tencent with paperwork attached. In its results published on Monday, it finally generated some proof that this might be the case using the tried and tested technique of generating actual profit.

Prosus said its “ecosystem” businesses – formerly the ecommerce bucket – generated $9.7bn in revenue and $1.3bn in adjusted earnings before interest, tax, depreciation and amortisation, with profitability now established across all ecosystems; Naspers’s results are in the same ballpark. It means the side businesses are no longer merely expensive decorations around the Tencent stake.

Free cash flow rose to about $1.49bn and, importantly, free cash flow excluding the Tencent dividend improved to $253m, from an outflow of $33m in FY25. This matters because it shows the operating businesses are beginning to fund themselves rather than relying on Tencent oxygen and, importantly, help contribute to the company’s share buyback effort.

Naspers and Prosus shares blipped up over 3.5% on the results – a far cry from their slide on the trading update that precded the results.

And yet.

Prosus trades at a roughly 16% discount to the value of its Tencent stake, which suggests the market is still saying that all its other assets – iFood, OLX, PayU, Just Eat Takeaway, Despegar, Takealot and the rest of the empire – are worth less than zero. The good news is that they are not as catastrophically less than zero as they were in the old days.

Waste of time?

Still, “there’s a large component of the market that thinks Prosus should just sell Tencent stock and keep buying back its shares until the discount narrows because everything else they do is a waste of time and value destructive”, says Anchor Capital’s Mike Gresty.

For many years, “Prosus Plus” – basically everything the company owned outside of Tencent – could more accurately have been called “Tencent Minus”, burning cash and producing rubbish returns.

This is what Fabricio Bloisi – now two years into his tenure as CEO – set out to change. Initially, his approach was well received.

Then the market soured on his purchases of Despegar, an Argentinian online travel company, and, more recently, Just Eat Takeaway. “I think people were worried that his background in food delivery meant he would double down on food delivery,” says Gresty.

That coincided with the recent message that Prosus would have to spend more on iFood, its food delivery businesses in Latin America, to fend off Chinese giant Meituan; memories of former CEO Bob van Dijk blithely spending the company’s cash on “portfolio businesses” resurfaced.

This, plus fewer share buybacks, and a slide in the Tencent share price mean Prosus is down 30% year to date.

“Where I do have sympathy for them is there’s a lot of one-off type stuff – investment revaluations, gains on disposal – which are throwing the numbers around a lot,” says Gresty.

Delivering the cash

“I think what they are trying to do is right; my cynical view is they’re quite good at adjusting out all the bad stuff and leaving you with what does look good, but what you can’t get away from is the cash generation – it’s a critical measure. So credit where it’s due,” he says.

Lauren Zunckel is one of the analysts who thought that market reaction to Prosus’s trading update seemed overdone; she tells Currency that the company’s priority was to improve the free cash flow generation of the ex-Tencent businesses, “and that is what they delivered”.

Even the main South African business in the group, online retailer Takealot, made its first real profit. Mind you, this was all of $11m on revenues of $1bn. That’s the sort of ratio you might expect from a construction company teetering on the brink.

Still, Gresty says relative to recent history, Prosus’s results presentation gave a lot more detail on what the company is trying to build and what progress it’s made.

“The ecosystem they’ve established, in Latin America in particular, is quite extensive,” he says. “There are a few seriously interesting green shoots for the patient though there remains a high degree of frustration and scepticism. But I was quite impressed.”

Not everyone is convinced, though.

Laurium portfolio manager Junaid Bray says the “lifestyle ecosystem” Prosus is building can work in markets with “established integrated businesses with dominant market shares and strong brand presence” but warns that “not all markets are conducive to this”.

“In most developed markets you have dominant players in separate verticals and it is difficult for one player to integrate this into one ecosystem,” he says. So, while it may work in Latin America where you have, say, iFood as a base on which to add payments and fintech and travel businesses, “in Europe, establishing an ecosystem may be more challenging”.

‘Considerable value’

Ultimately, the only real question for investors is: should you buy Prosus (or Naspers) stock?

For both Gresty and Zunckel, the answer is yes. “If you just look at it on a pure earnings basis, you’re paying a 10 p:e [price-earnings ratio] on Naspers and about a 12 forward p:e on Tencent, so both of them are extremely depressed,” says Anchor.

Says Zunckel: “We have been buyers of Prosus and do believe there is considerable value in the share price at current levels.”

Gresty adds: “There’s also been a giant sucking sound from all emerging markets” into shares like Korea’s SK Hynix and Samsung.

His big issue is what catalyst will change the market’s jaundiced expectations in the immediate term. Unless there’s some sort of positive jolt, investors will have to accept a long slog into 2027 as Prosus invests in itself.

Monday’s results were the best evidence yet that Prosus’s post-Tencent story has substance. But there’s little point ignoring that Tencent remains the heart of the engine room, humming away like the very large Chinese generator nobody wants to mention too often.

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_{Top image: supplied.}