Naspers ,PRX | Reclassification

Prosus' first results post listing delivered slower core HEPS growth (+7% y/y) compared to the growth in Tencent's contribution (+12% y/y), which was last seen in FY'17, as the Group expanded its food delivery and classifieds investments. We expect this theme will persist over the next two years. In our view, the investment could accelerate if the Group is successful in its Just Eat acquisition. Further, this step change in investment will slow the growth of profits from the classifieds business and increase investor uncertainty given the relatively nascent state of the global food delivery market. While we see substantial opportunity in the food delivery business, the size of the acquisition of Just Eat and the longer-term economics of the industry changes the profit profile of Naspers. We expected accelerating profits of the classified business to offset the development spend on food delivery. However, the offset is now deferred given the migration into convenient transactions (Ctx) and the slowing revenue growth in ex-Ctx classifieds. We expect the Prosus listing to provide a longer-term mechanism to reduce the discount. However, we expect the current 38.8% see-through discount that Naspers trades at to NAV to remain wide in the medium-term.