Author Topic: TCEHY - Tencent  (Read 20097 times)

Liberty

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Re: TCEHY - Tencent
« Reply #60 on: October 15, 2018, 06:57:34 AM »
https://www.ft.com/content/9d7c1434-cc50-11e8-b276-b9069bde0956

Quote
Chinese video games companies expect Beijing’s freeze on approvals for new titles to last until next year, dealing a fresh blow to internet giant Tencent and other publishers catering to the world’s largest gaming market.

Regulators stopped approving commercial licences for online games in late March as a result of a shake-up placing media regulation under direct Communist party control, meaning companies have been deprived of revenue from new game launches.

A resumption of approvals would be a major boost to Tencent, which has lost $200bn in market capitalisation this year, largely as a result of stagnant growth in games sales, which make up most of its revenues. 
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khturbo

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Re: TCEHY - Tencent
« Reply #61 on: October 22, 2018, 02:13:58 PM »
I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher.

So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day.

cameronfen

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Re: TCEHY - Tencent
« Reply #62 on: Today at 08:59:29 AM »
I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher.

So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day.

It's accretive to stock price in the short term, but if you think the price of tencent is going to grow at an IRR or 20% a year for the next 10 years (not saying they will), why would you sell the stock now and buy back your shares when in 10 years you have a lot more money to buyback shares (if the discount doesn't close).  Buying back shares is a short term boost to the stock.  Not saying it is bad, but you should weigh the opportunity of the buyback in terms of IRR to the IRR of the capital investment of the firm (in the case the IRR of owning financial capital (stocks)).  I think there still is decent evidence that the IRR of tencent over the long term is still pretty good. 

Granted I bet there is some empire building mentality (although they are spinning off their African Pay TV), and they are actually selling tencent stock slowly and redeploying capital.  In fact even selling 2% of the outstanding shares (out of a total of like 33% total stake) which they did recently, required a transaction outside the public market, suggesting that they have liquidity issues selling that big a stake.  That also may be a big reason they aren't selling as they are locked in liquidity-wise.  That being said with the shares they have sold, it doesn't look like they are buying back shares which is a negative, but they are looking to deploy it in other VC investments, which I think is not as attractive as buybacks, but they have generated like 25-35% IRR on VC investments not including tencent, so it's not like they don't know what they are doing. 

Jurgis

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Re: TCEHY - Tencent
« Reply #63 on: Today at 10:30:42 AM »
I took a look at Naspers and could never get comfortable with owning it over Tencent itself. My main problem is that they have an obvious way to increase intrinsic value per share by a lot, which is to just start selling of Tencent shares and buying back stock with the proceeds. The IRR on that is almost certainly going to be way higher than whatever they're doing because of how big the discount is - if they keep doing that and the discount doesn't shrink then they'll buy back all of the stock. Obviously that can't happen so the discount will shrink by a ton and the per share value will be way higher.

So it's hard for me to get behind a company that's allocating capital that is pretty clearly making investments that aren't nearly as accretive as a buyback. For those of you that do own Naspers how do you get around this? Just seems like they're destroying value every day.

It's accretive to stock price in the short term, but if you think the price of tencent is going to grow at an IRR or 20% a year for the next 10 years (not saying they will), why would you sell the stock now and buy back your shares when in 10 years you have a lot more money to buyback shares (if the discount doesn't close).  Buying back shares is a short term boost to the stock.  Not saying it is bad, but you should weigh the opportunity of the buyback in terms of IRR to the IRR of the capital investment of the firm (in the case the IRR of owning financial capital (stocks)).  I think there still is decent evidence that the IRR of tencent over the long term is still pretty good. 

Granted I bet there is some empire building mentality (although they are spinning off their African Pay TV), and they are actually selling tencent stock slowly and redeploying capital.  In fact even selling 2% of the outstanding shares (out of a total of like 33% total stake) which they did recently, required a transaction outside the public market, suggesting that they have liquidity issues selling that big a stake.  That also may be a big reason they aren't selling as they are locked in liquidity-wise.  That being said with the shares they have sold, it doesn't look like they are buying back shares which is a negative, but they are looking to deploy it in other VC investments, which I think is not as attractive as buybacks, but they have generated like 25-35% IRR on VC investments not including tencent, so it's not like they don't know what they are doing. 

Good answer.

Also they have been told to sell Tencent for the last 5-10 years. So far their decision not to sell has been the right one. Of course, this may have built false bias, though this year's small sale seems to show that they are open to sell (some) at the right price and situation.
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khturbo

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Re: TCEHY - Tencent
« Reply #64 on: Today at 11:16:16 AM »
Right, I understand that and that's a fair point. What I mean more is that with the current discount, if you sell some Tencent and use the money for a share buyback, you have more Tencent per share plus all of the other stuff.

Glancing through the annual report it looks like they own 31.2% of Tencent. So roughly $106bb of value compared to a market price of $82bb for Naspers. I'm guessing I might be off by a bit, but the point still stands. Why not just sell, say, $1bb of Tencent and use the money to buy back stock? Not only would you own more of the other stuff, but you'd own more Tencent per share as well.

It's just puzzling to me why they don't do this. I get maybe there's a liquidity problem but they could just sell the shares off over time which would solve that. I also thought that there wouldn't be tax leakage, so that wouldn't be an issue either.

I ask because I would like to own Naspers given the discount but I own TCEHY instead because I just can't get behind a management team that isn't doing what looks like a win-win. So if there's a reason they don't then I would love to know about it.