Volatile MTN still good value say analysts
MTN Group’s (MTN) recent share price decline is largely as a result of compounding issues in Iran; however, RMB Private Bank believes that the company still offers value given its medium-term growth prospects.
Roshini Moodley, portfolio manager at RMB Private Bank noted that MTN has declined in excess of 7% since TurkCell filed a $4.2 billion lawsuit against the group in a federal court in Washington late last month.
“Naturally, investors remain concerned that, should Turkcell succeed in these legal proceedings, then a potential R32 billion liability against MTN would be a significant setback, as this represents close to 13% of the current MTN market cap,” said Moodley.
“While MTN boasts a solid corporate governance track record since listing, we would expect that the share price could remain volatile in the coming months until some resolution on these allegations is reached,” Moodley continued.
Vodacom vs MTN
RMB said that, based on the stark contrast in share price performance between MTN and Vodacom, it appears that investors may be switching from MTN into Vodacom due to the latter operators relative defensiveness within the sector.
“Despite the short term headwinds facing MTN, we still believe the company offers value given the medium term growth prospects coupled with a strong balance sheet and cash flow profile,” concluded Moodley.
Fred Teeling-Smith, a telecoms analyst at STANLIB said that, if a foreign shareholder looks at MTN, they would see quite a bit of noise around its business at the moment – and the lodging of the claim by Turkcell gives shareholders one more reason for them to sell their shares in favour of something else.
“This is reflected in the fall in the share price by close to 8% over three days,” Teeling-Smith said.
STANLIB continued saying that the recovery in the price on Tuesday (April 3, 2012) “appears to be investors thinking that the price drop has been overdone when one considers the valuation fundamentals of the company. It still offers attractive growth prospects in Africa with an increasing dividend payout looking forward”.
At close of play on Tuesday, shares in MTN advanced 1.31%, or R1.69, to R130.68, having declined as a much as R7.02, or 5.2%, to R128 on the JSE on Monday (April 2, 2012) – before ending the day 3.87% off at R129.80.
Rival, Vodacom (VOD) gathered 1.64%, or R1.78, to R110.28.
By noon on Wednesday (April 4, 2012) on the JSE, shares in MTN slipped R3.20, or 2.42%, to R128.80, with Vodacom off 28 cents to R110.13.
The overall index was off 1,32% to 33,741 points.
In March, MTN Group released results for the year-ended 31 December 2011, reporting a 16.2% growth in group subscriber numbers, to 164.5 million and a 6.3% increase in revenues, to R121.884 billion. The group’s adjusted headline earnings per share increased 43.2%, to R10.70 cents.
The group declared a final dividend of 476 cents.
MTN Rwanda
RMB pointed to additional pressure on the SA based mobile operator, namely the entrance of Bharti Airtel into Rwanda.
“MTN Rwanda has already experienced competitive pressure in that market, as market share declined from 72% to 65% in the fourth quarter of 2011. One would expect that the entrance of Bharti Airtel in Rwanda would intensify competition in that region, however, the overall Rwandan market still remains attractive as mobile penetration rates are only expected to reach around 60% this year,” Moodley said.
STANLIB’s Fred Teeling-Smith, however, pointed out that MTN Rwanda had 2.9 million subscribers at an average ARPU of $3.8.
“It is a fairly small market for MTN, which has over 165 million subscribers,” he finished.
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