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 The group, which owns a $155 billion one-third stake in Chinese
technology giant Tencent, unveiled plans on Monday to hive off
Multichoice to help close a more than 60 percent discount in its
share price to the value of its holding in Tencent.
This leaves Multichoice free to fend for itself in an
increasingly competitive market where Netflix is already
supplying thousands of viewers with original TV content and
Hollywood hits such as "Stranger Things" and "House of Cards".
"The intention is to basically have absolutely minimal debt
going to Multichoice to provide them with flexibility to make
any strategic move they want to make," said Naspers' chief
executive Bob van Dyk. "We're not going to suck any cash out of
Multichoice."
Although streaming is still rare on a continent hobbled by slow
internet speeds, reaching fewer than 2 million of sub-Saharan
Africa's billion citizens, it is increasingly challenging more
popular satellite-TV services.
Multichoice's fledgling internet-streaming service, Showmax, is
betting a blend of Hollywood blockbusters and local content such
as "Real Househelps of Kawangware" and "The Bachelor South
Africa" will set it apart from rivals. It launched Showmax in
2016.
Naspers does not provide subscriber numbers for Showmax, but
London-based Digital TV Research estimates it had 334,000 at the
end of last year, fewer than half as many as Netflix and mostly
in South Africa.
SHOWMAX
Multichoice had 7.5 billion rand ($503 million) cash at the end
of the latest financial disclosure period in March, generated
largely from subscription fees of as much as 809 rand a month
from some of its 13.5 million households across the continent.
It did not give details how it would deploy the money but
analysts expect it to scale up Showmax.
"I expect them to be quite a good dividend paying stock but on
the other hand it is an industry that is facing structural
change so I expect them to continue to invest in Showmax to
defend the position," said Renier de Bruyn, a portfolio manager
at Sanlam Private Wealth.
Multichoice's dominant position in most of its markets makes it
unlikely to seek to acquire rivals.
Founded in 1915, Naspers has transformed itself from an
apartheid-era newspaper publisher into a $100 billion behemoth
thanks largely to cash flow from Multichoice that enabled it to
pursue private-equity style investments in e-commerce platforms
across the world.
According to Digital TV Research the number of pay TV users in
sub-Saharan Africa - a region of more than a billion people - is
expected to jump by three quarters between 2017 and 2023 to
nearly 41 million, with more than half of that signing up for
satellite TV offerings.
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Over the same period, subscriptions for streaming services -
which also include Kwese, Cell C's Black and Vodacom's VideoPlay
- are forecast to grow more than six-fold to nearly 10 million.
CUTTING EDGE
"We're quite confident. The combination of Multichoice's reach,
Showmax and DSTV Now cutting edge internet television services
will provide unique and unmatched offering," said Multichoice
Chief Executive Imtiaz Patel.
DSTV Now is an app that allows Multichoice subscribers to live
stream channels on the satellite platform.
The company has invested heavily in infrastructure that allows
it to beam television content since its launch more than 20
years ago.
Video offering via satellite is expected to remain at the heart
of video entertainment for the majority of Africans for at least
the next five years despite a rapid uptake of video on demand
offerings from internet streaming services.
The bulk of internet users rely on mobile phones to connect but
hardly use their data to stream videos because of the cost. In
South Africa, for example, a 1GB data bundle costs around 149
rand, a stiff price in a country where the minimum wage is 20
rand an hour.
The listing of Multichoice is likely to fetch between 9 and 12
times its $627 million annual core earnings, or EBITDA, valuing
it at least $5.6 billion, bankers and analysts said and making
it a blue-chip Top-40 stock on the Johannesburg bourse similar
in size to drugmaker Aspen Pharmacare.
"We endorse this decision. Naspers recently raised 140 billion
rand, twice the size of Multichoice, by selling 2 percent of
Tencent and 33 billion rand from the sale of their Flipkart
stake," said Byron Lotter, a portfolio manager at Vestact, which
owns shares in Naspers.
"Historically Naspers used the Multichoice cash cow to fund new
acquisitions. They no longer need the cash from Multichoice."
($1 = 14.9056 rand)
(1 South African rand = $0.0670)
(Reporting by Tiisetso Motsoeneng; editing by Emelia
Sithole-Matarise and Georgina Prodhan)
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