Amazing Classic
Tencent has rebounded on the stock market recently, as the Chinese video game and social media giant (WeChat) unveiled profits 12% higher than the consensus of analysts’ estimates, on the occasion of the publication of its quarterly accounts. “Given the weakness of the action in recent weeks, we are buying Tencent”, valued at 21 times the estimated earnings, indicates Bordier & Cie.
Cost reduction programs “will continue to bear fruit” in the second half, while there is “a little more visibility on the business (easing of regulations, macroeconomic improvement)”, argues the Swiss private bank, which adds that Tencent will “probably initiate a share buyback program this year”, which is positive for the stock price.
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Tencent benefited from cost-cutting programs and the exit of unprofitable businesses (including online education, e-commerce and live streaming gaming). “Management emphasized that progress in selling and marketing costs limited the profit decline in the second quarter, but that there was still a lot of room for improvement on general expenses as well as other measures to the second half”, notes Bordier et Cie.
In the second half of the year, “there is potential for a return to growth in gaming with the monetization of new games, while management expects to obtain licensing approval for various products”, adds the Geneva bank.
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From a technical analysis perspective, Tencent stock has given encouraging early signals by pulling out the top of a declining channel and foraying above the 20-day moving average, but it there is still a lot to do before reversing the medium-term downtrend.
In addition, on the Paris Stock Exchange, Tencent favored high volatility in the share price of the French video game publisher Ubisoft, rumors pointing to a possible increase in its capital, at a price representing more than double the current course!
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