Thread by @MaanoMadima

PSG Group is going on a huge unbundling exercise to unlock value for its shareholders. 

Share price of PSG Group has been trading at a significant discount of 30% to the value of its underlying investments.

Naspers and African Rainbow Capital shareholders are envious.

[Thread]

Trading at a discount to the sum-of-the-parts is common for holding companies.

What 'complicates' things with holding co that have unlisted investments is the difficulty in valuing those unlisted investments. 

Valuing listed investments within holding companies is often easier.

When entity trades at discount to its sum-of-the-parts,it means that if investors were to hold individual positions in the holding company’s underlying assets, they would be worth more than holding shares in parent that owns those assets.

The biggest value unlock for PSG Group shareholders came when PSG Group unbundled its shareholding of Capitec during the financial year ended 28 February 2021 in terms of which R21bn, representing R94.48 per PSG Group Share, was unlocked for shareholders.

If the PSG Group Board decides to proceed with the PSG Group Restructuring, it will entail the unbundling by PSG Group of its JSE-listed investments in PSG Konsult, Curro, Kaap Agri, CA&S and 25.1% of Stadio to PSG Group shareholders.

PSG Group unbundling;

1) PSG Konsult unbundled shares, comprising 60.8% of PSG Konsult, to PSG Group shareholders by way of a pro rata distribution in specie,
anticipated to be in the ratio of 3.869 PSG Konsult shares for every PSG Group share held on the PSG Group Unbundling

2) Curro unbundled shares, comprising 63.6% of the total issued share capital of Curro, to PSG Group shareholders by way of a pro rata distribution in specie, anticipated to be in the ratio of 1.816 Curro Shares for every PSG Group Share held on the PSG Group unbundling

Read quoted thread to better understand Stadio’s formation and acquisitions.

https://twitter.com/maanomadima/status/1461649514738167815

3) subject to Zeder unbundling and distributing its shareholding in Kaap Agri to Zeder shareholders, the Kaap Agri unbundled shares, comprising 34.9% of the total issued share capital of Kaap Agri, to PSG Group shareholders

https://twitter.com/maanomadima/status/1498566294899208197

4) subject to the listing of the shares of CA&S on the JSE, the CA&S Unbundled Shares, comprising 47% of CA&S, to PSG Group shareholders by way of a pro rata distribution in specie, anticipated to be in the ratio of 1.037 CA&S shares for every PSG Group share

5) Stadio unbundled shares, comprising 25.1% of Stadio, to PSG Group Shareholders by way of a pro rata distribution in specie, anticipated to be in the ratio of 1.017 Stadio Shares for every PSG Group Share held on the PSG
Group unbundling

Naspers’s 2001 acquisition of a 46.5% stake in Tencent for a mere lousy $32m is the greatest investment by a SA company and is valued at $221bn.

H1 2021, Prosus sold 2% of Tencent and generated proceeds of $14.6bn.

Prosus ⬇️ to 28.9% and won't sell again in the next 3 years.

Ask Naspers’ shareholders how they feel to have a company that trades at a huge discount.

Market participants have always wondered if Naspers and Prosus will ever unbundle the 28.9% Tencent stake to them as shareholders.

Valuation of Tencent is another headache.

In 2019, Naspers decided to unbundle all of its internet interests outside of South Africa including the famous Tencent stake into a new company which was called Prosus.

Prosus got a primary listing on Euronext Amsterdam and a secondary listing on the JSE.

Naspers held 73.2%.

Prosus is a top 12 global consumer internet company.

Before the creation of Prosus, Naspers's size on the JSE was 25.9% of the JSE Shareholder Weighted Index (SWIX) which had become untenable.

Post listing it ⬇️ to 18.4% 
of the SWIX but ⬆️ to 23.3% as at Apr 2021.

Valuation of Tencent is a serious headache for Naspers. 

Naspers sought to fight the gap between its market value and the sum of its parts (Naspers' shares trade at a substantial discount to the value of its underlying investments).

Listing of Prosus didn't help.

How big is the valuation gap between Tencent, Prosus and Naspers? 

Value of the 28.9% stake in Tencent is +-R2.5 trillion.

Market cap of Prosus is R2.3trn and

Naspers’s market cap is R900bn.

There is a clear correlation between Naspers’s increasing size on the JSE and the growth in the discount.

Prior to Prosus listing, Naspers traded at a discount to NAV of 35%-40%, and has averaged 50% post listing.

Prosus trades at an average discount to NAV of just below 34%.

I am sure African Rainbow Capital shareholders are looking at this with envy hoping that ARC will unbundle Rain and Tymebank to close the gap between the share price and NAV. 

FY21, ARC revealed that it values Rain at R16.357bn 🤣

CEO of African Rainbow Capital previously stated that they plan to consolidate and trim the portfolio of 47 entities to 30 over the next 5yrs and use the proceeds to pay dividends to and buy back shares.

Is this part of the grand plan to reduce the discount?

Investec perfected the unbundling of Investec Asset Management which latter got renamed Ninety One.

It initially unbundled 55% to shareholders and will distribute a further 15% this year which will deliver a combine value of R35.6bn.

https://twitter.com/maanomadima/status/1495744060300136449

Now, the PSG Group will delist from the JSE post the unbundling.

The JSE is bleeding companies.

In 1999, JSE had 811 companies listed on the main board.

It now has less than 320 listings.