Prosus's new interim CEO inherits a conundrum from his predecessor: how to bridge the yawning gap between the value of the company’s stock and its assets.
CEO inherits a conundrum from his predecessor: how to bridge the yawning gap between the value of the company’s stock and its assets.
The sticking point is its US$93-billion stake in Chinese tech giant Tencent Holdings, with some investors steering clear of firms with large China exposure due to the country’s faltering post-Covid rebound and rising geopolitical tensions. Prosus’s stock performance is highly correlated to that of Tencent.
Strategically, Prosus is “doing the right things” in terms of simplifying its structure, said Osamu Yamagata, a London-based portfolio manager at Abrdn. But the firm’s ability to narrow the discount to its own assets may be more dependent on “issues out of their control and that is around the attractiveness of the Chinese economy”.
To convince investors that it’s undervalued, Prosus launched a buyback last year, funded by a gradual selling of its Tencent stake. Having traded more than 50% below the sum of its parts for first half of last year, the buyback announcement quickly narrowed the gap to 30%. But since then, the discount has been fluctuating around the historical mean of around 36%, according to estimates by HSBC analysts.