A year ago today, I wrote a short post on a company called Tencent Holdings (TCEHY), a dominant internet company in China and its ubiquitous crown jewel of an app platform called WeChat. I began studying that company for a few months, and last fall I bought some shares for the first time, adding some more shares in December. The stock has risen this year, but still offers significant value in my opinion, and I plan to hold my shares for the long-term as I believe the company is likely to compound at attractive rates over time.
Also read:
- Q2/H1 Hedge Fund Letters - Letters, Conferences, Calls, And More
- Baupost Letter Points To Concern Over Risk Parity, Systematic Strategies During Crisis
- AI Hedge Fund Robots Beating Their Human Masters
Last month, I did a presentation for the Manual of Ideas on Tencent that I wanted to share here with readers.
There are four things I like about Tencent: the huge network effect of WeChat, the massive runway for growth, the high returns on capital and significant free cash flow (despite barely scratching the surface of WeChat’s potential), and the fact that the company is run by its driven, long-term focused founder who remains one of the major shareholders.
The slides outline these four advantages, as well as go over in more detail how I think about the valuation of Tencent, which I view as a long-term compounder. I’ll have a bit more to say on Tencent in Saber Capital’s next investor letter, which I’m writing this week, but these slides should cover in detail why I like the company and the investment.
Again, the stock is up quite a bit in recent months, and I have no idea where the stock goes in the next year or so (as is the case with any stock), but I think over a long period of time Tencent shares will likely compound at a rate that roughly mirrors the growth of the company’s intrinsic value – and I think this rate of compounding will be quite high for a number of years to come.
Disclosure: John Huber and clients of Saber Capital Management own shares of TCEHY. Please do your own due diligence. This is not a recommendation to buy shares.
John Huber is the portfolio manager of Saber Capital Management, LLC, an investment firm that manages separate accounts for clients. Saber employs a value investing strategy with a primary goal of patiently compounding capital for the long-term.
To read more of John’s writings or to get on Saber Capital’s email distribution list, please visit the Letters and Commentary page on Saber’s website. John can be reached at [email protected].
Article by John Huber, Base Hit Investing
