Investors have quickly moved on from this week’s unexpectedly disappointing news that MTN will temporarily close dividend taps, helping the stock rebound strongly and piling pressure on CEO Ralph Mupita to make good on his promise to return at least R4.7bn to shareholders in the next financial year.   

Shareholders were initially a tad annoyed, pushing the stock to its biggest one-day drop in a month, after they learnt that they are going to miss out on this year’s returns even after their company’s services had been more essential than ever during the lockdown as business and entertainment moved online.

Also considering that rival Vodacom doled out nearly R8bn in the six months to end-September, and MTN is in the third year of a drive to sell noncore assets that will net it R25bn, shareholders had legitimate reasons to expect the company to shower them with money in the year to the end of December.  

However, Mupita, who was promoted to the top job in 2020 when Rob Shuter’s contract came to an end, has advanced well grounded and cogent reasons for putting dividends on hold while reminding investors of the risks associated with its emerging markets strategy.

MTN is choking under R43bn of borrowings at holding company level, putting its net debt to earnings before interest, tax, depreciation and amortisation (ebitda), or core profit — a measure used by analysts and lenders to work out how well a company’s earnings cover its debt — at 2.2 times. That is well below the company’s target of 1.5 times.  

It’s difficult to dispute the logic behind opting to use R13bn in net profit at the end of the financial year to bring debt down, especially given the slow progress in offloading assets aimed at sharpening the company’s focus in Africa and reducing risks, as well as chronic hard currency shortages in Nigeria, its biggest market.  

In early 2019, MTN launched a sweeping overhaul of its operations, putting multiple businesses on the chopping block, later adding its Middle Eastern operations. Its well laid out plans to raise R25bn within three to five years seem to have been knocked off course as the programme, as at the end of December, had only brought in a little over R4bn.

It’s not hard to imagine that would-be buyers are hoarding cash and hunkering down for a prolonged economic downturn, and if they venture out into the M&A scene, they are likely pitching offers that make little commercial sense for Mupita and his team. It’s prudent for MTN to hold out for the assets that also include cellphone towers at home. After all, it’s not a fire sale.  

Furthermore, MTN is unable to bring back home more than R4bn in accumulated dividends in Nigeria due to a chronic hard currency shortage in one of the company’s most lucrative markets. Out of that hefty cash pile, MTN was only able to get its hands on about R286m. This came after the price of oil, Nigeria’s main export earner, collapsed in the wake of the pandemic, evaporating foreign exchange reserves and prompting the central banks to hang on to dollars.

If a rebound in the MTN share price on Thursday is anything to go by, investors have given Mupita the benefit of the doubt and accepted that he will make good his pledge to reward them with about a R4.7bn dividend and possibly more via one-off returns such as share buybacks.  

The stock jumped about 12% on Thursday, bringing gains so far in 2021 to more than 38%. Vodacom inched down 0.34%.  

With the oil price having rebound to about $70 per barrel — more or less enough for Nigeria to improve its export earnings  and prompt its central bank to loosen its grip on dollars — and a potential cash bonanza from asset sales, Mupita does not have the luxury of low expectations.

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