Prosus a big opportunity for investors – Old Mutual 

Prosus presents a significant opportunity for investors as the company’s diversification across geographies and technology-based companies is unrivalled.

This is feedback from Old Mutual Private Clients’ chief research analyst, Nadine Chetty-Khan, who said it also helps that the company is buying back large chunks of its own stock. 

Prosus released encouraging 2024 full-year results, streamlining its organisational structure and improving core performance metrics. 

Revenue grew by 11%, free cash flow tripled year-on-year to $524 million and core headline earnings per share rose by 96%. 

This was driven by strong performance in eCommerce, Tencent, and the ongoing buyback programme. Notably, eCommerce revenue surged by 19%, and the segment achieved profitability ahead of schedule.  

The ongoing buyback programme consistently rewarded shareholders, having created US$32 billion in value and resulting in an 8% Net Asset Value (NAV) per share accretion in FY24. 

With a strong balance sheet and prudent capital allocation, Prosus continues to deliver value to shareholders while positioning itself at the forefront of technological innovation.

Looking ahead, Fabricio Bloisi’s recent appointment as CEO adds further momentum. He brings significant entrepreneurial experience in scaling technology companies and a drive for innovation.

Prosus offers direct exposure to fast-growing online markets in the Chinese internet, global video games, online classifieds, food delivery, payments, etailing, advertising and a host of smaller assets and stakes. 

The group’s diversification as a global consumer internet group is unrivalled, certainly within the emerging market universe. 

While many of the group’s platforms remain unprofitable, Old Mutual believes there is enough evidence to suggest that they will be in time.

The company has seen an accelerated turnaround in eCommerce and a narrowing of losses across business segments.

This is a particularly compelling opportunity for investors because Prosus trades at a discount to its underlying NAV. 

However, this discount should narrow as the group delivers operationally and continues to implement its value unlock strategy. Prosus offers a significant opportunity to embrace disruption at a discounted price.

One major area of concern is the company’s Edtech business, which showed flat revenue growth and posted significant trading losses. 

“Edtech remains an underwhelming segment compared to the rest of the group, with the broad adoption of AI and the macroeconomic landscape proven challenging for the segment.”

In particular, Stack Overflow has struggled with steps being taken to turn this business around by leveraging in-house AI expertise. 

Overall, this has yielded early signs of a turnaround, with Stack Overflow losses reducing by 70% in the second half of the year, but it remains to be seen if the improvements can be sustained. 

The poor performance of this business has meant Prosus’ internal rate of return has been below target over the past two years. 

This has forced management to take steps to rationalise its organizational structure, increase engagement with operating companies and investments, and redesign the investment process to address its underperformance. 

External investment was limited to $571 million in the year compared to the peak of $6.3 billion in 2022 as management remains disciplined in its capital allocation. 

Fabricio Bloisi’s onboarding as the new CEO, effective 1 July 2024, also aims to reignite an entrepreneurial and innovative culture to drive growth and leaner operations. 

He brings a deep operational understanding and experience in scaling technology companies such as iFood.

Management remains committed to its share buyback programme to unlock value for shareholders. Old Mutual Private Clients’ fair value of R858.54 per share for the business presents a 28.10% upside from here.