Upgrade Overview#
Morgan Stanley has recently upgraded Prosus from "equal-weight" to "overweight," indicating a more favorable outlook for the company. The new price target is set at €51, which is lower than the previous target of €57 but still suggests a potential upside of 29% from the closing price of €40.02 on March 23.
Understanding the NAV Discount#
The upgrade is largely due to Prosus's net asset value (NAV) discount reaching the highest point in its historical range. Currently, the stock is trading at a 48% discount based on Morgan Stanley's NAV calculations using analyst price targets, and a 35% discount when considering the trading values of its listed assets. This discount has widened since the launch of an open-ended buyback program in 2022.
Tencent's Influence#
Tencent, which represents about 85% of Prosus's NAV, plays a crucial role in this analysis. Morgan Stanley has reduced its price target for Tencent to HK$650, reflecting a 12% cut after recent results, but still implies a potential 26% upside. Tencent's shares have dropped 15% year-to-date, primarily due to increased spending on artificial intelligence, which has led to lowered earnings forecasts for 2026 and 2027.
Financial Metrics and Future Projections#
As of now, Prosus has approximately €5 billion in net debt. The company has funded 54% of its buyback through sales of its Tencent stake, with the remainder coming from cash reserves. For fiscal year 2026, earnings per share (EPS) estimates have been raised by 6% to $4.01, while EPS for fiscal year 2027 has been slightly reduced by 2% to $4.64. The valuation suggests a NAV per share of €80, applying a 35% discount to reach the €51 target. The bull and bear cases for Prosus are set at €78 and €30, respectively, indicating varying levels of market confidence.