Why MTN sold one of its most profitable divisions
Sale of healthy Cypriot business will generate R4bn, which MTN will use to reduce its debt
MTN’s profitable little Cypriot business has become the first casualty of the group’s portfolio review process.
MTN Cyprus, bought in 2006 as part of a broader transaction, was always something of an anomaly in the emerging-markets group. MTN has now agreed to sell it for just over R4bn to Monaco Telecom.
Its only operation in Europe, MTN Cyprus generated average revenue per user (Arpu) of $19.53 a month in the fourth quarter of 2017 — nearly three times what the group made per subscriber in its next-best markets.
"MTN Cyprus is a nice little business and our team has really done a good job of getting a good performance out of it over the past few years," MTN CEO Rob Shuter said this week.
Earnings before interest, tax, depreciation and amortisation (ebitda) rose 9.8% to R595m in 2017 — making Cyprus the third-fastest-growing market in MTN’s portfolio of 22 countries last year.
But it is a tiny operation and the scope for further growth is relatively limited. More than one in three Cypriots already use MTN.
At the end of March, MTN had 426,000 subscribers on the Mediterranean island, which has a population of about 1.1m. The average Cypriot subscriber uses nearly four times the amount of data each month as MTN’s SA users.
Shuter says Cyprus simply does not fit its geographic focus or its strategy to target markets where the adoption of digital services is growing off a low base.
"On that basis we thought if we got a good offer we’d probably move on."
The net sale proceeds of €260m in cash values MTN Cyprus at about eight times reported ebitda in 2017 — a decent price tag, according to analysts and Shuter.
MTN will use the proceeds to pay down debts and bolster its balance sheet, he says. The company has net debt of close to R60bn. Cutting debt is a strategic priority — so much so that MTN has trimmed its dividend twice in the past few years to rein in its interest-bearing liabilities.
Meanwhile, Shuter says, MTN is re-evaluating its presence in some of the tougher operating markets that are plagued by unrest. The company operates in war-torn countries including South Sudan, Yemen, Syria and Afghanistan. But if it decides to exit these markets, it could have a tough time finding an enthusiastic buyer.