Analysis of the Naspers structure Naspers is a leading multinational media group, incorporated in 1915 as a public limited liability company

and listed on the Johannesburg Stock Exchange (JSE) in September 1994. The company also has a listing on the London Stock Exchange (LSE). The Companys segments include Internet, pay television, print media and related technology in emerging markets. Its principal operations are in Internet platforms (focusing on commerce, communities, content, communication and games), pay-television and the provision of related technologies and print media, including publishing, distribution and printing of magazines, newspapers and books(Naspers.,2012 :1). The Naspers Internet subsidiary consists of investments in internet platforms in Central and Eastern Europe, China, Russia, Brazil, Africa, India and Thailand. The services provided are primarily delivered to computers and mobile phones (Naspers., 2012;1).

The Pay Television subsidiary provides subscriber platforms and channels in sub-Saharan Africa, as well as investments in mobile television in sub-Saharan Africa (Naspers., 2012:1).

In the Technology operation, Naspers deals with the development of underlying technologies for internet, pay-television and mobile platforms (Naspers., 2012:1). The Print Media operation is responsible for the groups magazines, newspapers, printing, distribution and book publishing businesses in South Africa and sub-Saharan Africa, as well as print media investments in Brazil and China (Naspers., 2012:1) Segments to be valued separately. Ten Cents in the Internet operations should be valued separately because it has unstable and unpredictable revenue generation therefore cannot be easily valued using discounted cash flows, therefore should be valued separately. More growth in the use of the internet on the coming years due to the emergence of new forms of social media communications such as blogs also makes the revenues to be made difficult to forecast.

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Key drivers to Nasperss Value Generic factors such as liquidity, Control premium ,Growth into Africa and other emerging markets and other Macroeconomic considerations such as the exchange rate since the company operates on a global scale are important key success factors for Naspers. Key assumptions to consider when valuing Naspers The main assumptions to be considered should be those that directly influence the use of discounted cash flow valuations, which are growth, interest rates, exchange rates, tax rates, and depreciation and amortization rates.

Historical Analysis of Naspers The appendix indicates that Naspers revenues have been fluctuating year on year from 2007 where there were no net sales. The highest sales recorded were in 2009; while in 2010 revenues increased but at a decreasing rate. This declining increase could be attributed to the fact that the print business globally, including Naspers, suffered during the recession, due to advertisers spending less on print advertising to cut back on costs and because of the stronger Rand. Irdeto, the companys technology operations was also heavily affected by the recession because drastic cut backs on research and development due to the crises (Naspers, 2010:17). The fact that there was still growth during the recession is attributed to the fact that most emerging markets in which Naspers operates survived the global economic meltdown relatively well. On average, the company experienced revenue growth of 15% over the past 5 years.

Naspers earnings per share have increased by 61% from 2010, decreased by -44% from 2009, from 2008,a 59% increase and from 2007 by 44%.The decrease in earning per share from 2009 to 2010 can be attributed to the global financial crises and can be tied with the declining increase in revenue shown above.

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Current ratio of 1.1 in 2007, dropped to 1.09 in 2008, which could be attributed to the financial crises as globally liquidity of many companies was jeopardized. The ratio then grew to a consistent 1.2 in 2009 and 2010, from which it increased to 1.24 in 2011.The increase in liquidity could be because the company has put in place mechanisms to absorb threats to liquidity, by reducing short-term debt financing. Furthermore, the companys liquidity remaining strong through the recession could be attributed to the diversified nature of its operations since those did not suffer equally during the economic meltdown. Industry current ratio is 0.85 which means that Naspers has had a relatively strong financial position in terms of its liquidity. The groups net operating profit less amortization and tax has been increasing at a sharply declining rate from 2007 until 2011, from a 17.3% increase from 2007 to a 4.4% increase from 2010.This could be due to the fact that the company has made more acquisitions in intangible assets since 2007 and hence have to deduct larger sums for amortization. This could also be that because the company has made acquisitions in multiple countries, they have had to pay more for operating cash taxes due to tax adjustments for foreign taxes, and global increases in interest rates. The fluctuating cost of sales experienced by the group could be, attributed to the unstable nature of its internet business operations. Naspers return on equity was at its highest in 2009 and has showed continued increase to date. This means that return earned on the common stockholders investment has been increasing. Relative to the industry five year average of 8.90%, Naspers has had a five year ROE average of 27% (Reuters., 2012:1). This indicates that compared to their competitors, Naspers look after their shareholders and this sends out a clear message to future investors.

Naspers experienced a return on invested capital (ROIC) of 6.8% in 2011, 7.9% in 2010, 8.03 in 2009, 6.3% in 2008 and the highest ROIC recorded in its 5 year analysis of 10.5% in 2007.These

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variations in ROIC are attributed to the differences in the profitability of the acquisitions that the group has made.

Forecast of Naspers performance Sales growth (g) Scenario Worst case Base case Best case total growth 3% 18% 20% probability 50% 30% 20% Weighted average 1.5% 5.4% 4% 10.9%

The World Bank, in its Global Economic Prospects report has stated that the global economy has entered a dangerous period. It elaborates that some of the financial turmoil in Europe has spread to developing and other high-income countries, which until earlier had been unaffected, hence, growth in several major developing countries (Brazil, India, Russia, South Africa and Turkey) is significantly slower than it was earlier in the recovery(World Bank., 2012:1).Seeing as Naspers has major holdings in the countries mentioned, the worst case scenario, of a 3% revenue growth rate has been assumed to have the highest probability of happening. Seeing as from the historical analysis, the revenue growth for the past five years averaged to 18%, even though there was a recession, this will be used as the base case. With all the economic challenges stated, and considering that Naspers has not had such a revenue growth rate, 20% was chosen as the best case that the company could find itself in. However this is highly unlikely because the global economy is expected to contract. Cost of sales growth (g)
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Scenario Worst case Base case Best case total

Growth% of sales 60 50 40

Probability% 25 60 15

Weighted average 15% 30% 6% 51%

From the historical analysis, the cost of providing services averaged around 50% of net sales for the past five years; hence this has been used as the base case scenario. Because financial theory states that cost of sales increase with sales, it is highly likely that the base case will continue being the status quo, hence the high probability assumption. Selling, general and administrative expenses growth (g) Scenario Worst case Base case Best case total Growth% of sales 50 30 20 Probability% 20 60 20 Weighted average 10% 18% 4% 32%

The past five years have shown selling, general and administrative expenses averaging around 30% of sales, therefore this was chosen as the base case scenario. Amortization As it is evident from the ROIC historical analysis that acquisitions have not brought significant returns for the group, it will be assumed that amortization will stay constant for the next five years. This assumption emanates from the assumption that the group will not make more acquisitions of intangible assets. Operating cash taxes These will be assumed to be 28% since this has been the taxation at statutory rate. Furthermore, the World Bank forecasts a double dip recession; it can be assumed that governments will not be changing tax rates due to the volatility that may caused due to
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protesting civilians and companies feeling pressure from increased taxes during hard financial times. This is also supported by the fact that Naspers has invested more into emerging sub Saharan markets, and the World Bank has stated that developing countries will have much less fiscal space available to respond to a new crisis (World Bank., 2012:3). Changes in working capital Changes in working capital were forecasted to be 5% for consistency Capital expenditure In forecasting for the capital expenditure, it was estimated, looking at the property, plant and Equipment expenditure from 2010 and 2011 that there was an increase of 5% .Therefore, for consistency of the results, the rate of 5% was used for subsequent years.

Naspers cost of capital The McGregor valuation tool was used to calculate the weighted average working capital of Naspers, using 153 as the risk free rate. The WACC of the company was found to be 10.98% and in calculating the terminal value, was rounded to 11%.A growth rate of 7% was used as discussed in class. The 2017 free cash flow or terminal value of R 1,132.98 million was found. This is a much lower free cash flow from the other cash flows forecasted ,starting 2012.This then indicates that in the long-term, using the same growth rates to forecast reduces the value of future cash flows. The terminal value here is positive which shows that in perpertuity, Naspers will still have positive cash flows.

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List of references Naspers., 2012.About Naspers. Available [online]: http://www.naspers.com/about-naspers.php Accessed: [23 February 2012] Naspers.,2010.AnnualReport.Available[Online]:www.naspers.com/downloads/ar/2010/naspers _ar2010.pdf .Accessed: [20 April 2012]

Reuters.,

2012.NaspersLtd(NPNJn.J).Available[Online]:

http://www.reuters.com/finance/stocks/overview?symbol=NPNJn.J. Accessed: [16 April 2012]

World Bank., 2012. Global Economic Prospects: Uncertainties and vulnerabilities. January 2012

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