How this fund manager is looking at the Prosus listing

In a long-awaited move, NASPERS has finally made the decision to unbundle its subsidiary Prosus, marking a significant event in the stock market. Meryl Pick, Fund Manager at Old Mutual Investment Group, sheds light on the rationale behind this strategic move and its implications for the investment landscape. NASPERS, originally a print media company, recognized the limitations of the print media industry in the long term and opted to diversify into various forms of media, including multi-choice TV and venture capital investments like 10 cents. The success of these investments, particularly in 10 cents, led to exponential growth, posing a challenge in terms of market dynamics. NASPERS, being a JSC-listed company, primarily catered to the South African asset management market, which constrained its potential global reach. The disproportionate size of the company relative to the local market necessitated the unbundling of Prosus to attract a new wave of global investors who may not engage with a JSC-listed entity. By listing on Amsterdam’s Euronext, Prosus aims to unlock value for South African investors and bridge the gap between the company's stature and the constraints of the local market. The move also signifies a shift in investment patterns, reflecting a trend of capital flight from South African stocks to offshore alternatives. Investors have displayed a preference for offshore-listed companies like BTI and RSPRS, diverting capital from local enterprises. The rise of passive funds further exacerbates this trend, as index-tracking mechanisms contribute to the disproportionate growth of large-cap stocks while neglecting smaller companies. Despite the prevailing pessimism surrounding South African stocks such as construction, banking, and retail sectors, Pick remains optimistic about the opportunities in the banking and consumer goods segments. This optimism stems from a contrarian perspective, recognizing that 'bad news' in terms of stock performance can often create entry points for value investors. As expensive shares undergo corrections due to adverse developments, active managers like Pick perceive these downturns as opportunities to invest in fundamentally sound companies with growth potential. Pick shares insights on top picks in the current market climate, citing Wilson Bailey in the construction sector, FirstRand in banking, Shoprite in retail, and Mr. Price in the consumer goods space as promising investment prospects. Conversely, she identifies Anheuser-Busch InBev as a quality company inflated by panic-driven demand for safe assets, suggesting it as a potential drop. Gold stocks and platinum stocks are also flagged as overvalued due to unrealistic expectations, prompting a cautious stance on these assets. Additionally, recent divestments in Discovery underscore the impact of market uncertainties and capital requirements on investment decisions. The Prosus listing on Amsterdam’s Euronext marks a significant development in the NASPERS unbundling saga, signaling a strategic repositioning to tap into global investment opportunities. As the investment landscape witnesses a shift towards offshore investments and passive fund strategies, active managers like Pick navigate the evolving market dynamics to identify value propositions and capitalize on emerging opportunities.