Naspers is a company in South Africa, which is engaged in the sphere of multinational media and operates in the segment of electronic media such as satellite and cable pay-TV, internet and instant messaging, and the platforms for the related services.
Moreover, its activity is related to the printed media, and the services associated with it: publishing, distribution, and printing. This paper aims to analyze the financial statements of the company and provide the analysis for the investment opportunities for the potential stakeholders from the point of view of the portfolio manager of Westville High Growth Investment Portfolio (WHGIP). In the light of the fact that the reported earnings of the company will be also analyzed from the point of view of the potential investments, as well as the company’s risk analysis, assets turnover, and interest coverage ratios.
Reported Earnings and Future Prospects
To begin with it the following numbers should be given. Originally, these numbers are given on the official site of the Naspers Company, and data is provided for the year 2009.
|Revenue ($ mil.)||2,746.4|
|Gross Profit ($ mil.)||1,354.0|
|Operating Income ($ mil.)||581.6|
|Total Net Income ($ mil.)||356.6|
|Diluted EPS (Net Income)||0.73|
It is also reported that the internet segment of the operational activity entails up to R 3.8 billion. Originally, this segment incorporates the e-commerce activity of Allegro (Eastern Europe) and Ricardo (Western Europe) companies. The fact is that the markets of Eastern Europe were subjected to rapid growth, thus, Naspers had an excellent opportunity to increase its operating income.
The Asian market of multimedia was extended essentially by the Olympics, which increased the traffic up to one billion page views per day, and peak concurrent users exceeded 57 million.
Indian market is represented by Ibibo company, which is one of the largest companions of Naspers in Asia. Unfortunately, the data o traffic and financial flow are unavailable for this company.
As for the projects for the future, Naspers is going to increase the cooperation with Russian mail.ru services and invest in the further development of mail.ru services and technical basis.
The overall pay-TV services are one-third of the total revenues of the company. As the CEO states, the operating margins diminished
due to costs of growing the subscriber base, higher content costs, and the consequence of increased competition. In South Africa, advertising revenues retreated on the back of a general slowdown. More competition across the continent is reflected in higher prices for some content (Sutcliffe, 2007).
ROE and the Key Determinant of the Growth of Earnings
Reuters.com states that the Return on Equity of the Naspers Corporation is 7.56, while the average indicators in the sphere, in general, are -8.06. As for the matters of the key determinants of company growth, it should be stated that the main factor of growth is the constant extension of the multimedia market. While western markets are large and overfilled with multimedia services and resources, the markets of Eastern Europe, Asia, and Africa are still free of extensive competence, consequently, Naspers is aiming to expand its activity in the developing markets and invest the potentially profitable projects like mail.ru services in Russian speaking internet segment. As Reuters states, this investment has provided 44% of the interest income. (Stock Quote, 2009). Thus, the growth rates and indicators are the followings
|Sales (MRQ) vs Qtr. 1 Yr. Ago||28.42||1.69||-7.47|
|Sales (TTM) vs TTM 1 Yr. Ago||30.08||4.55||-4.15|
|Sales – 5 Yr. Growth Rate||15.82||8.96||10.87|
|EPS (MRQ) vs Qtr. 1 Yr. Ago||1.70||-47.75||-40.93|
|EPS (TTM) vs TTM 1 Yr. Ago||-20.49||—||—|
|EPS – 5 Yr. Growth Rate||38.20||15.01||-3.08|
|Capital Spending – 5 Yr. Growth Rate||24.86||19.27||12.69|
The numbers, represented in the table reveal the real image of company development, and, in the circumstances of the global financial crisis and the negative indicators in the industry scales, the rates of the Naspers Company appear to be rather favorable for both: the further growth and investment.
|Company||Industry Median||Market Median|
|Price/Cash Flow Ratio||45.45||10.94||42.55|
These financial ratios represent the dynamics of Company growth and may be used for the evaluation of potential risks for further development. The fact is that the risks are associated with the technical difficulties of expanding multimedia.
On the other hand, the financial risks, which are controlled by the risk management team, appear to be moderate. The liquidity risks presuppose the maintenance of sufficient cash and marketable securities, which are available for the funding components by the means of the adequate amount of the committed credit. In terms of the context of the association of the company, no actual restrictions should be placed on the borrowing capacity of the company. It should be emphasized that the company had the following unutilized banking facilities as of 31 March 2008 and 31 March 2007:
|On-call||1 482 090||252 200|
|Expiring within one year||18 439||1 554 539|
|Expiring beyond one year||909 664||–|
|2 410 193||1 806 739|
The earnings ratios require the definition of the market for the proper analysis of the industrial segment and accurate evaluation of the ratios, associated with the prices within the markets. Market determination is mainly represented by the market value, and this data is important for the calculation of the price-earnings rates. Originally, the price-earnings ratios and price-book ratios were stated in the “other ratios” chapter of the report. Basin on these numbers, it should be stated that the investment environment appears to be rather favorable, as the ratios point out the further growth of the company.
Nevertheless, the investment share will be rather high, as the company is developing stably, consequently, stakeholders should not hope for the cheap actions and their rapid growth. Because the ratios are formed based on the total market value per share, it should be stated that the allover ratios of the investment environment seem to be favorable enough. Nevertheless, the stakeholders and investors should not hope for rapid incomes, as the company is going to make some costly investments in the projects of developing the media markets in Eastern Europe and Asia.
Economic Value Added
The expenses, associated with the value-added generally originate from the matters of market expansion and project development. Thus, the most costly projects, such as Tencent and Sportscn.com provide up to 80% of investment rates for the Naspers Company. It is stated in Naspers Group (2009) that:
“Internet value-added services provide the main platform on which Tencent’s user community is built. IM is at the core of Tencent’s Internet value-added service platform. QQ is a comprehensive service platform that utilizes IM and other value-added services to create an online community”
Moreover, taking into consideration the fact that Tencent is making long-term investments building on its technical expertise to develop IM solutions targeted for enterprises in China. Thus, the Economic Value Added will grow, as the projects require increased investment flow.
Shares of Naspers
Originally, it is hard to define whether the values or shares of Naspers Company are over-or undervalued. The fact is that security analysis, which may resort to this type of business evaluation is useless here, as the multimedia sector is one of the most stable or constantly developing (depending on the geographic region) business sectors in the world. The only exception is the extensive insurance of the investment to the mail.ru project, as this is the constantly developing portal with a stable audience.
Evaluation of the Prospects
The investment forecast, which should be made based on the provided analysis should emphasize that the investment environment is favorable enough for the market development and the increase of investment flow in general. Consequently, the purchase of the ordinary shares of Naspers Ltd will not end up with failure, nevertheless, there is no necessity to wait for the stable and rapid income, as while the ratios of the company are rather high, the general ratios in the industry appear to be negative.
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Naspers Group (2009) Internet operations in Africa, China, Thailand. Web.
Stock Quote (2009) Naspers Limited (NPNJq.L) (London Stock Exchange). Reuters. Web.
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