Prosus flags profit surge of up to 50%

Prosus, Naspers’s global internet arm, flagged a nearly 50% jump in annual profit on Thursday, riding on the breakneck ascent of its Chinese moneymaker and increased contribution from its e-commerce ventures.

In a trading update that covers the full year of the pandemic, Prosus expects core headline earnings per share (the primary profit measure that strips out certain one-off items) to increase in a range of 41.1% and 47.9% in the year to end-March.

“Despite the turbulent impact of the pandemic and the related uncertainty for our group and our people in the past financial year, we witnessed an acceleration in the digital transformation and growth trends of each one of our sectors,” Prosus said. “The improved profitability from the e-commerce segments and the growing contribution from Tencent were the key drivers of growth in Prosus’s earnings.”

Though the earnings guidance does not break down the earnings contribution from Tencent, the full results, which are due to be published on June 21, are expected to highlight Prosus’s dependence on the

internet giant even as its other businesses turn profitable.

Tencent, of which Prosus owns about 29%, has been growing at a breakneck speed as locked-down consumers worldwide flock to its blockbuster video games and social media platforms.

But the holding, worth more than $200bn, has become a headache for Prosus as it towers over the value of its market value, let alone its underlying assets. That has prompted CEO Bob van Dijk to embark on a series of measures to narrow it and release trillions of rand in trapped value.

Over the past three years, Van Dijk has unveiled a string of corporate actions to squash the discount, the biggest of which was the listing of Prosus in Amsterdam in 2019. But it soon became apparent that was not enough, prompting him to embark on a convoluted share swap scheme aimed at jacking up Prosus’s free float and shrinking its parent’s weight on the JSE.

Still, the deal, under which Prosus will buy up a 45.4% stake in Naspers in exchange for its own shares, has underwhelmed investors. Albert Saporta, the founder of Geneva-based investment house AIM&R, told Financial Mail last month the transaction was “idiotic”.

But Prosus, which also said it has been in constructive talks with shareholders who it said had expressed concern about the complexity of the deal and questioned alignment of management and shareholder interests, defended the transaction in a separate statement, saying it was equitable.

“We agree that we must avoid friction due to complexity. After extensive work, a structure was found that makes the end state of the transaction straightforward.”