A Jumia delivery van. Picture: BLOOMBERG
A Jumia delivery van. Picture: BLOOMBERG

Africa's biggest mobile network operator MTN is likely to proceed with its plan to significantly reduce its stake in Jumia Technologies even as the Nigerian-based e-commerce company soared after listing on the New York Stock Exchange on Friday. 

On Friday, shares in Africa-focused Jumia  leapt 75% in New York, giving it a market value of $1.9bn (R26.6bn). In response,  MTN’s shares on the JSE rose 1% to R98.51 early on Monday — the best level since the mobile operator ran into regulatory troubles in Nigeria in August 2018. 

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MTN’s roughly 30% stake in the company is now worth about R8.2bn, or R4.36 per MTN share. MTN's share price closed 0.51% up at R98, giving it a market capitalisation of about R184bn. 

The mobile operator said on Monday it was pleased with the IPO but did not say how long it intended to hold on to its investment in Jumia.

"MTN surely won’t change its strategy merely on market reaction to the Jumia IPO as market performance tends to be volatile," said Peter Takaendesa, portfolio manager at Mergence Investment Managers.

Despite the potential of high returns over the long term, analysts say MTN should sell or at least reduce its stake.

“When it comes time to sell their stake, it will raise a nice chunk of easy-to-use cash [for MTN],” said  local money manager Vestact on Monday.

Hannes van den Berg, of Investec Asset Management, said: "We believe that MTN’s capital could be better spent to reduce holding company debt and realising value for its shareholders."

Van den Berg said that before Jumia listed, MTN indicated to investors it would dilute its stake down to around 20%-22%. He said MTN also indicated it hoped  to gain more than R15bn from asset sales over the next three years. 

"We expect MTN to monetise its investment in Jumia gradually over the next 12-24 months if market conditions remain favourable," Takaendesa said.

Takaendesa added that the growth and risk profile of e-commerce assets does not quite fit with telecoms business models, so it may be better for MTN to sell.

"MTN can still benefit from Jumia’s potential long term growth as a commercial partner and does not necessarily need to be a direct investor in Jumia," he said. 

MTN’s shares are trading at around their best level since the network operator announced in late August 2018 that the Nigerian central bank wanted it to return $8.1bn worth of dividends.

That demand, together with a $2bn tax demand by the country’s attorney-general just days later, sent the group’s stock crashing at the time. In mid-September, MTN’s shares briefly dipped below the R70 mark.

While the company reached a settlement with Nigeria’s central bank in late December — the $8.1bn claim was reduced to $53m — the tax case remains an overhang on its share price.

MTN’s court battle against Nigeria’s attorney-general has been adjourned until May 7. The company maintains that its tax affairs are up to date and has not made any provision for extra taxes.

Looking ahead, MTN has said it plans to focus more on its core business. As to whether the company has another potential billion dollar company in its portfolio, Rob Shuter, MTN Group CEO said: "We have similar investments in our Middle East markets, not as far progressed as Jumia – we hope they can build and prosper going forward. For now to see an African e-commerce company listing on the NYSE is very exciting."

hedleyn@businesslive.co.za