Naspers and Prosus expect massive drop in earnings

Naspers and Prosus – two of the biggest companies listed on the JSE – said they expect their headline earnings per share (HEPS) to drop between 74% to 82%.

Both companies released near-identical trading updates this morning, notifying shareholders of the expected drop in earnings as they finalise their financial statements for the year ended March 2023.

Prosus is majority-owned by Naspers. Prosus expects its earnings per share (EPS) to fall between 46.7% to 39.8% and HEPS to fall between 80.9% to 74.0%. Naspers expects a 56.8% to 49.8% drop in EPS and an 82.1% to 75.1% drop in HEPS.

“During the period, the group’s consolidated e-commerce portfolio showed good growth and improving profitability,” Naspers said.

“However, overall earnings in the period were impacted primarily by a reduced profit contribution from our associates, particularly Tencent.”

During the year, both companies reduced their stake in Tencent from 29% to 26%, and the cash acquired from those sales was used to repurchase shares. 

“This transaction locks in immediate value while increasing the Group’s exposure to Tencent and its e-commerce portfolio on a per-share basis, leading to a 5% accretion in NAV per share,” the companies said. 

“Combined with the discount narrowing of approximately 17 percentage points, the repurchase transaction has created approximately $29 billion in value for shareholders.”

The companies also said their earnings from consolidated businesses in the second half of the year were stronger than the first half.

The companies listed the following reasons for the expected declines in earnings.

• Lower contributions from equity accounted investments of approximately $4.1 billion or 233 US cents per share. 

Tencent is the Group’s largest equity-accounted associate and was impacted by Covid-19 lockdowns and regulations in China. Tencent has since reported its first quarter numbers for the financial year ending 31 December 2024, delivering earnings growth as it benefits from China’s re-opening, a stable regulatory environment and cost reductions. 

• Higher impairment charges 

These charges mainly relate to the companies’ equity-accounted investments driven by an increase in market interest rates and revised business outlooks

• Lower gains from the sale of assets of $4.7 billion or 257 US cents per share

In the prior financial year ended 31 March 2022, the companies sold 2% of their Tencent shareholding in an accelerated book build to increase its financial flexibility at a time when internet valuations were elevated. 

In the current year, the companies sold Tencent shares to fund its open-ended share repurchase. This delivered a lower gain on sale than the prior year due to market correction in internet valuations.