MTN needs to buy big: analyst
An analyst believes that Africa’s biggest mobile operator MTN Group will need to buy big in order to sustain its historical growth rates.
Shares in MTN declined 3.5% in trade on Monday (2 September), after the group traded ex-dividend, and has dipped below R180 (R178.99) for the first time since the end of July, having reached a peak of R200.90 in August.
However, the group has added R24.70 or 16% to its share price over the past year, but is flat (+1%) in the year to date period, giving it a market cap of R336.87 billion. Over a two year period, MTN growth on the exchange is at 24.4%.
The JSE all share index meanwhile, has grown just over 6% since the start of January.
MTN recently reported a 9.8% rise in revenue in interim results for the six months ended June 2013, to R65.248 billion, but operating profit grew only marginally to R19.596 billion, from R19.184 billion before.
The group however, continued with its healthy shareholder reward policy and declared an interim dividend per share of 370 cents, up 15.3%.
Nadim Mohamed, investment analyst and partner at First Avenue Investment Management noted that if one strips out the effect of foreign exchange movements and reclassification of the MTN Syria intergroup loan, MTN’s revenue declined 1.9% in constant currency terms.
The analyst noted that MTN has done very well in entering and navigating African markets. The group is positioned in 22 territories on the continent, as well as in the Middle East.
“Even though these markets have lower penetration, it too is finding it difficult to defend its tariffs and they really need a big deal to sustain historical growth rates,” Mohamed said.
“Right now, foreign exchange movements are a big feature in their performance.”
MTN has come under the spotlight in recent months after numerous resignations and suspensions of executives and managers in South Africa.
The group also continues to work in countries like Iran and Syria where the US and EU have imposed sanctions, while MTN Nigeria continues to operate amid attacks on its telecommunication installations by terrorist group, Boko Haram.
“It does not appear that the market has ever fully discounted the risk of doing businesses in African and high risk Middle Eastern markets. This is because of an enviably good track record – however, going forward more of the growth will depend on these markets than on SA so we feel that there is much higher intrinsic risk,” Mohamed said.
Following the group’s recent results presentation, MTN president and CEO, Sifiso Dabengwa, said the group was not currently in acquisition talks.
However, Dabengwa said that the operator is “continuously looking (at acquisitions) – it’s part of what we do on an ingoing basis”.
MTN has been linked to a number of acquisitions recently, from Neotel in South Africa, to India through a merger deal with Reliance Communications.
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