Sample Investment Holdings

Naspers, Ltd

A Pan-African Growth Company (Oct 2015)

Naspers is a 100 year old infotech company based in South Africa. Naspers has a market leading pay TV portfolio, world-class e commerce investments, and a strong management team. The outlook for Naspers’ sub Saharan Africa business is very robust. Pay TV penetration rates and ARPUs (the amount of money that the company bills each customer) in Africa are very low by global standards. As Africa grows and consumers there have more disposable income, these metrics will converge with global standards. This trend has a long, powerful trajectory and Naspers will prosper as a market leader.

Update (December 2017)

Naspers’ stock has dramatically outperformed the broad emerging markets indices since 2015. Naspers has appreciated 78% while the EM benchmark (EEM) has appreciated 38%. This outperformance occurred despite the dramatic weakness of Naspers’ core pay TV segment (currently EBITDA negative) and is largely attributed to Naspers’ large holding of Tencent shares. Naspers’ shares currently trade at a significant discount to NAV.

So what should we make of this and what have we done about it?

Difficult macro headwinds in Africa and consumers’ switch to mobile have been the main  drivers for the weakness of Naspers’ pay TV segment. While we believe that the macro environment will improve over the next few years, the switch to mobile is a permanent change. This will continue to challenge Naspers’ pay TV EBITDA generation going forward.

Naspers’ stock price discount to NAV is a function of the challenges in the pay TV segment and their investment in many internet startup businesses funded largely with debt. The stock price discount may remain until some of their internet investments show more promise and scale.

We have reduced our holding of Naspers shares and have been adding Tencent shares.

Update (September 2019)

In March of 2019, Naspers announced that it would spin off its Tencent and other e commerce assets into a new Amsterdam listed company, Prosus NV. The transaction was completed in September 2019. We have not yet invested in Prosus or reinvested in  “new” Tencent shares but we are monitoring both for value in global e commerce and Sub Saharan Africa media.



A Latin American Fixed-Income Opportunity (Oct 2015)

Petrobras is Brazil’s vertically integrated national oil company. Members of Petrobras’ senior management have been embroiled is a bribery scandal that is still playing out. As the scandal is resolved, we expect Petrobras to become a more transparent, better managed company. Petrobras will re-emerge as a financially sound leader in Brazil’s growth trend.

We purchased Petrobras US dollar denominated bonds in March 2015 and again in September 2015. In both instances, we purchased the bonds well below par and at a significant discount to US Treasury bond and US high yield bond yields. Our Petrobras bond holdings have a yield of ~9%, and we expect a total return much higher than this as Petrobras’ business and credit metrics improve over the medium term.

Update (January 2018)

Petrobras bonds maturing in 2023 and 2024 have produced a 21% annual rate of return since mid 2015. This is a significant outperformance compared to emerging market corporate bond ETFs (CEMBIV) and the Barclays Global HY Bond index which have returned 3.2% and 10.26% respectively over the same period. The yield on the Petrobras bonds that we purchased in 2015 is now 4.75%. The spread to US Treasury bonds is 2.4%. Despite this outperformance and the current lower current yield, Petrobras is still attractive for our portfolio given their improved operating outlook and the potential for additional restructuring and asset sales. Last week Petrobras settled its lawsuit with US investors over the “Carwash”  scandal. This removes uncertainty about potential liabilities that could impact cash flow going forward.

Update (October 2019)

Petrobras 2023 and 2024 bonds now yield 3.04% and 3.27% respectively. That is a spread of 138 and 164 over US Treasury bonds. Petrobras bonds performance have reflected both the rally in US interest rates as well as management’s strong performance with regard to asset sales and cash flow generation. Petrobras remains a core holding for us, but given the strong performance we have moved some funds into the Brazil pulp and paper sector as well as the bonds of Brazilian airline  AZUL.