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Bank: “Prosus top pick for 2023”

November 30, 2022

On December 5th, Netherlands-based media conglomerate Prosus will hold a Capital Markets Day (along with its major backer Naspers) and it has prompted investment bank Exane/BNPP to issue a note to clients which – in summary – says that Prosus is set to emerge from the crises [of the past few years] stronger and is their “top pick” across the TMT sector.

Prosus is a global investment group that invests and operates in sectors and markets with long-term growth potential. It is one of the largest technology investors in the world.

Prosus, says the bank’s note, has seen it all since listing – the euphoric highs in early 2020 via China and monetary policy tailwinds to the gloomy lows of Spring-22 on geopolitical and regulatory fears.

“After a period of upheaval and share price volatility, we re-visit our unique in-depth, dual coverage of PRX/700 and explore both Prosus and Tencent’s medium- and long-term prospects. As we head into 2023, we argue Prosus is set to emerge from these crises stronger and reiterate our Outperform rating,” says the bank’s report.

That fresh opinion is quite a dramatic change given that the bank’s most recent opinion was that it was a “laggard” and has now been helped by a significant capital investment from its major shareholder Tencent.

The bank argues that Prosus is a top pick into 2023 because it offers cheap valuation on trough earnings in an improving regulatory and geopolitical backdrop, with an idiosyncratic positioning relative to EU/US macro.

It adds that the Prosus “discount paradigm” is being transformed via the rolling buyback and although this is a play on Tencent (c90 percent NAV), what mega cap has such obvious tailwinds & discounted valuation (still)?

“The Chinese authorities’ regulatory rectification of internet and content industry has ended with a new equilibrium now in place,” says the bank. Counter-intuitive it may also be that the re-emergence of Covid in China might help with a new focus on home-based activity for Tencent.

In summary it has raised its Prosus share Target Price to €86 (from the recent €60) and which represents an upside of some 43 per cent, and a significant improvement on the past year and a 20 pe rcent share fall overall.

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