MTN share is undervalued, says CFO
MTN says that its shares are undervalued, having lost more than 50% of their value on the JSE so far in 2020 as a result of Covid-19 and exposure to oil-producing countries such as Nigeria.
At close of trade on Monday, the share price of Africa’s largest mobile network operator was down 17.33% at R29.48, having started the year at R83.65.
Local competitors were also hit. At the close, Vodacom was down 2.27% at R116.66, Telkom was 13.15% down at R14.86 and Cell C’s biggest shareholder Blue Label Telecoms was down 9.89% at R1.64.
MTN group CFO Ralph Mupita said he believed the share was fundamentally undervalued and that a “cocktail of issues has resulted in investors not focusing on value but rather trading momentum”.
There has been a huge sell-off in global equities in the past few, weeks with emerging markets most affected.
Mupita said MTN was caught up in the general negative sentiment on global markets arising from Covid-19 and the drop in the oil price, which affects countries such as Nigeria, its largest market accounting for a third of group revenues. Oil-linked and oil-dependent shares were most affected, he said.
Mupita said risks associated with unresolved trade tension between the US and China still loomed large.
However, he was confident that MTN business was in good shape, having “a strong balance sheet, sufficient liquidity and remains strongly cash generative”.
MTN ended the financial year to December 2019 with R8.5bn in cash, and recently received R8.9bn from the sale of its stakes in ATC Uganda and ATC Ghana. Additionally, the group had access to R23bn in credit facilities, giving it “liquidity headroom of about R40bn”, Mupita said.
He said that, judging from engagement with MTN shareholders, long-term investors agreed that its share was undervalued.
Global investment bank UBS recently revised its price target for the cellphone operator downwards from R106 in November to R97 last week, an indication that it values the company much higher than the current levels on the market.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers said he agreed that MTN was undervalued, saying the market was not focusing on long-term fundamentals of most companies as it assigned a higher weighting to current developments.
“Our fair-value estimate is in the R90-R120 per share range, although we agree that the Covid-19 uncertainty and related economic challenges make forecasting near-term numbers much more challenging.”
Takaendesa said short-term market concern was genuine as some oil-producing countries would find it harder to stabilise their economies and currencies if the oil price remained at current levels for a longer period.
“However, we believe MTN still offers an attractive long-term risk-reward profile, given its strong number one or two market share positions in all its operating countries where data and mobile financial services penetration remain very low,” he said.
Paul Theron, fund manager at Vestact Asset Management, which holds MTN stock, said: “I would not sell my shares at this price.”
However, he did not offer a price target for the shares, saying “MTN’s share price is pathetically low, but you can’t say it is wrong. Market prices are determined every day. It is what it is.”
Theron said clients had adopted a wait-and-see approach, given Covid-19 and risk in SA, Nigeria and Iran.
From their analysis, Mupita said the drop in MTN's share price could be attributed to issues such as algorithmic trading, investment fund mandates and margin calls.
He said MTN's business was resilient. MTN continued to monitor Covid-19 developments, and remained focused on its capital-allocation priorities, including reducing group debt.
One big issue that the company was monitoring now was currency risk. Mupita said the group operated in 21 primarily emerging markets, and currency devaluations, particularly the naira and rand, were a big risk as part of MTN debt and imported materials for its network were denominated in US dollars.
Correction: An earlier version of this article referred to Cell C’s share price, whereas this was Blue Label Telecom's share price, the largest shareholder of the mobile operator.