July 30 (Bloomberg) -- As Africa's largest media company, with 5.6 million pay-TV subscribers today and a potential market of hundreds of millions more, Naspers Ltd. would appear to have almost limitless room for growth. Investors, though, seem to place little value on the South African company's primary publishing and broadcasting business.
Investments in Tencent Holdings Ltd., China's biggest Internet company, and Mail.ru, the largest Russian-language Internet firm and a 1.5 percent owner of Facebook Inc., account for almost 90 percent of Naspers' $23 billion market value.
That calculation puts a price tag of about $2.7 billion on Naspers' media operations -- satellite and cable TV across Africa, broadcast rights to English Premier League soccer, South Africa's biggest newspaper, and dozens of other businesses in 133 countries from Argentina to Zambia.
Chief Executive Officer Koos Bekker said the valuation is of little concern and that Naspers' reliance on two outposts on the Internet's wild frontier poses no risk to the company. "These investments look very much like the engine of pay-TV for us," Bekker said in a telephone interview from the company's headquarters in Cape Town.
The company's global Internet push and burgeoning African television operations will account for a growing share of sales and profits in coming years, said David Ferguson, a research analyst at Renaissance Capital in Moscow.
Income from new businesses "will increase to reduce the reliance" on Tencent and Mail.ru, said Ferguson, who has a buy recommendation on Naspers and predicts the stock will rise 26 percent.
Naspers will complete 10 to 20 acquisitions in the year through March 2013, Bekker said. "We see some opportunities in the e-commerce space," particularly in eastern Europe, he said.
The company spent 1.85 billion rand ($227 million) on four major purchases and "various smaller" ones in the previous year, Naspers said on June 27. It had 9.8 billion rand in cash and cash equivalents at the end of March.
This year, Naspers has purchased majority stakes in Netretail SRO, an online retail business in central Europe, and Internet Mall AS, a Prague-based website selling household goods such as washing machines. It also invested in Resolva.me, a Brazilian site that offers ratings of dentists, lawyers and other professionals.
Naspers, begun as a newspaper publisher in 1915, is rolling out $7 a month pay-TV deals in underserved markets such as Zambia, Kenya and Nigeria. The company's Daily Sun tabloid is the largest-selling daily in South Africa, while News24.com is the most popular online news service in the country. Its Supersport TV brand is the biggest sponsor of team sports in Africa.
Naspers is "well-positioned to succeed" with its next purchases because the company's executives are prepared to help acquired businesses, said Richard Tessendorf, an analyst at Avior Research in Johannesburg.
"These guys have been doing this for 10 to 15 years now," said Tessendorf, who has a hold recommendation on Naspers shares, which have jumped 29 percent this year.
Chief Investment Officer Mark Sorour is on the board of Mail.ru, and Naspers advises Tencent through the Chinese company's board, Bekker said.
Naspers owns 34.2 percent of Shenzhen-based Tencent and almost 29 percent of Mail.ru. Tencent shares have risen 47 percent this year, better than any company in the Bloomberg World Media Index, which includes Naspers and has jumped 18 percent in the period. Mail.ru has advanced 7.7 percent.
"We discovered both opportunities by being very early investors in both markets and learning step by step," Bekker said. Naspers had previously made unsuccessful investments in both China and Russia, he said, "and learned a lot from those failures, including how important good local management is."
Naspers has a team looking globally for investment possibilities and is approached regularly by entrepreneurs seeking partners, Bekker said. Last year, the company evaluated about 300 opportunities and agreed to about 30 deals, he said.
Naspers invested $191 million in Mail.ru in 2007 and its holding is worth $1.7 billion. The Tencent stake, purchased 12 years ago, was worth $18.6 billion as of July 27. Tencent contributed 11.4 billion rand to Naspers' sales of 39.5 billion rand in the year through March, and Mail.ru contributed 1.1 billion rand.
Naspers' stock trades at 23 times estimated earnings. The 60 companies in the Bloomberg World Media Index trade at an average of 15 times projected profit. The index includes Walt Disney Co. and Axel Springer AG, which like Naspers have publishing, television and Internet assets. Tencent trades at a multiple of 26 times earnings.
David Reynolds, a London-based analyst at Jefferies, cautions that Naspers' African television operations may face declining margins due to growing numbers of TV shows online.
"Naspers has become a derivative of Tencent, which begs the question why don't you just buy Tencent stock itself," Reynolds said.
Reynolds is the only analyst with a sell recommendation on the stock among seven who have reported on Naspers in the last month and shared their advice with Bloomberg. He initiated coverage with a sell rating on Nov. 23, and the stock has risen about 30 percent since then.
Bekker rejects the notion that shareholders see little potential in Naspers' core holdings. Investors typically value a company's shares in other corporations at about 70 percent of their listed price, he said. "In this thinking," Bekker said, "our Mail and Tencent stakes jointly will then be worth about half our market cap."