Prosus is 50% undervalued at present, with the prospect of a 50% - 100% USD total return over the next 5 years.
- Primary underlying asset Tencent is 30%+ undervelued owing to negative sentiment surrounding increased regulatory action in China's technology sector. Long term drivers indicate likely high-teens total return over 5 years. All segments of the busienss as well as the investment portfolio are well positioned to continue strong value growth.
- Ecommerce assets at Prosus are delivering good revenue growth >30% pa, with reducing lossess accross classifieds, payments and etail. Food delivery is less predictable.
- Sentiment is extremely negative at Prosus, due to shareholder concern that the new cross shareholding structure will widen the discount rather than narrow it. The discount to underlying assets has now increased to 45% at Prosus.
- Prosus shareholders will benefit from a 6% increase in NAV per share due to the swap transaction with Naspers.
- Prosus is preparing $5bn in stock repurchases post the swap transaction, and will continue to take additional measures to limit/reduce the discount. Such actions will enhance the per share value of Prosus shareholders.

Prosus owns 29.8% of Tencent 5.6% of Trip.com, and several small fintech, e-tail, and social media companies spread from Eastern Europe to South America. Dividing Prosus's market cap by the market value of it's Tencent and Trip.com stake alone shows that Prosus is trading at a 20%+ discount. This discount is not stable.

The Bear Case:

I believe that the discount is due to all those other companies in Prosus's collection. I don't believe that they are profitable (yet); they are sucking up cash, and Tencent doesn't have that large of a dividend. So, basically it's like owning Tencent, not getting the dividend, and also being forced to own a bunch of companies that may or may not turn out and that you might otherwise not want. Just because these companies would have market value if they were separate, doesn't mean that they'll work out and they may be more at the venture capital stage (where most fail). These companies may be seen at some point as purely liabilities with more debts than assets. If Prosus owns enough of these companies, they may have to pay the debts; if they were to stand alone, their creditors would be the bag holders. So, Prosus is a venture capital company, and your investment in it depends on your confidence in its management.

Further, Naspers structured the Prosus voting rights so that they always have 51%+ of the vote, therefore making all the decisions without stockholder input. As one writer wrote, it's like buying a safe with $1,400 in it for only $1,000, but the original owner gets to keep the key.

And there's also the psychological aspect of retail investors wanting to own the name. If I bought a bunch of Apple stock and set up a holding company around it and called it Joe's Company, it would probably sell at a big discount to Apple and likely stay there. I think this is especially relevant to Chinese investors wanting to own Tencent, and not a holding company that owns Tencent.

The Bull Case:

All said, though, I think it's probably a good deal. Some of there companies will fail, but one or two may be home runs. After all, Naspers bought their 30+% stake in Tencent in 2001 for $34 million. Maybe we should consider their track record. As with many stocks, management is one of the most important investment considerations.

Many of these companies are seeking to become the {tech industry leader} of {country}. For instance, Otodom becoming the Zillow of Poland, Letgo becoming the EBay of Turkey, StandVirtual becoming the Carmax of Portugal, and Delivery Hero being the DoorDash of Europe and beyond (with it's recent stock sale of Tencent, Prosus used some of that money to increase it's stake in Delivery Hero from 8 to 25%). They also own a large share of Mail.ru, a leading on line platform with almost 60 million monthly users in Russia.

Some of these many platforms will fail, and others will be absorbed into other companies, but if one or two of them hit it big, Prosus's market gap will quickly evaporate and should increase in real value.