THE BOTTOM LINE
The panic about Tencent and Naspers *might* be overdone
Not one of the 50 analysts tracked by Bloomberg has a sell recommendation on the stock. So that’s a sell, then?
While many other factors are at play, the past few trading days have shown once again just how much of an influence China’s Tencent has on the performance of the JSE.
Tencent plunged another 6.8% on Thursday, taking its losses since September 21 to 20%. Part-owner Naspers tracks Tencent closely, so along with a broader global stock selloff the JSE slumped further into the doldrums.
Despite regulatory challenges hurting its gaming business in China, analysts remain bullish about Tencent’s prospects. Even today, not one of the 50 analysts tracked by Bloomberg has a sell recommendation on the stock.
Francois Strydom of Momentum Securities said Tencent was trading at a five-year low on a one-year forward earnings multiple, meaning that the recent selloff provides a good entry point into the stock. He stressed that there is more to Tencent than gaming and WeChat. For instance, Tencent’s cloud and artificial intelligence business, which services companies, has been doing well.
“Cloud services revenue doubled year on year in the last quarter. This is also a key theme in our portfolio with the likes of Amazon Web Services and Microsoft’s Azure already playing major roles in our exposure to the cloud computing theme,” said Strydom. Tencent is also taking clear steps to drive advertising revenues.
Considering that the JSE now takes its cue from a company in China every morning, here’s hoping that analysts are right.