Naspers shares advance on Fitch rating
Shares in media and Internet company, Naspers advanced in afternoon trade on the JSE on Tuesday (2 July) after ratings firm Fitch praised the group’s Pay TV segment.
Fitch Ratings affirmed Naspers Long-term foreign currency Issuer Default Rating (IDR) at ‘BBB-‘ and Short-term foreign currency IDR at ‘F3’.
It pointed to a stable outlook for the group.
Fitch also affirmed Nasper’s senior unsecured rating at ‘BBB-‘, National Long-term rating at ‘A+(zaf)’ with a stable outlook and National Short-term rating at ‘F1(zaf)’.
Naspers added R9.66 or 1.32% to R739.92 on the JSE in afternoon trade, giving the group a market cap of R307.5 billion. Shares in Naspers have advanced 70% or R303 over the past year, amid a steep rise in recent earnings results.
The group has added R189, or 35%, to its share price since January.
Fitch said its rating and outlook are underpinned by the group’s stable cash flows derived from the pay TV division.
“Pay TV growth, which contributes 60% of revenue and almost all of group EBITDA, has surpassed our expectations.
“Naspers has outperformed our forecasts for pay TV in the past three years and it is evident that Africa’s growing middle class and propensity to spend on TV entertainment is deeper than we originally thought,” Fitch said.
Much of this growth is driven by low-end pay TV packages, which allow Naspers to open up new markets. “We expect a ramp up in digital terrestrial television (DTT) capex as new DTT licenses are awarded over the next two years,” Fitch said.
“This is expected to contribute the majority of new subscriber growth albeit at lower ARPUs than higher end direct to home (DTH) subscribers, also expected to grow but at lower absolute levels.”
E-Commerce
Fitch pointed out that Naspers is in a multi-year development phase to scale its e-commerce platforms in 23 countries.
E-commerce is Naspers’ second largest division but is the fastest growing, and management expects it to be the main EBITDA growth engine in the years ahead.
As a result, Fitch said that, due to heavy development spend (R3 billion in YE13), this businesses division is cash flow negative and will not contribute to positive cash flow for at least the next 24 months.
“Fitch notes that these businesses are currently the largest integrated e-commerce platforms in their respective countries but want to see further progress towards a sustainable positive cash flow contribution in future years,” the ratings group said.
Naspers home and away
Naspers generates 42% of its revenue, excluding associates, from outside South Africa.
“Not only does this US dollar income provide some natural US dollar debt service cover, it also mitigates potential regulatory or sovereign related risks associated with South Africa,” Fitch said.
Fitch warned that unexpected regulatory pressures relating to competition in the domestic pay TV market or changes in government regulations affecting the ability to service foreign debt repayments might put pressure on its future ratings.
“Material reversals in revenue growth in internet properties could be negative for the ratings given the amount of development spent to scale these businesses. Revenue weakness would be viewed in conjunction with margin developments and effects on overall group EBITDA,” it said.
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