Rob Shuter: An ‘encouraging start’. Picture: FREDDY MAVUNDA
Rob Shuter: An ‘encouraging start’. Picture: FREDDY MAVUNDA

MTN may be back in the black but it is not yet out of the woods. The share price has been under pressure because of concerns about the group’s growth prospects.

CEO Rob Shuter, who joined in March, presented his first half-year financial results on Thursday, with positive achievements in dividends and services revenue. He described the service revenue growth on constant currency as "respectable".

Data revenue jumped 31.9% and digital grew 24.7%, which Shuter modestly termed an "encouraging start" for a multinational operator whose strategy is based on those two areas.

MTN has 72m data subscribers out of a total customer base of 232m. So there is still significant growth potential for the group if it converts most of the customers to take up Internet-based services.

The group identified six pillars as part of its "BRIGHT" strategy that it believes will be key to taking advantage of the data boom. These pillars include best customer experience, with a focus on reducing churn and gaining market share; return on capital and improved efficiency; and growing Internet data and digital services, where the future of the mobile network operators lies.

To achieve this, investment in network is critical. MTN is investing R30bn in the financial year ending December, down from R35bn last year. Most of the reduction in capital expenditure is in Nigeria, due to the shortage of US dollars, which are used to import equipment.

There will also be a focus on return on capital and cash flow, with the aim of generating the right amount of cash out of its operations to fund business and pay dividends.

So where will growth come from?

In the next four years, MTN’s 22 markets will grow their population by an estimated 45m people to 700m.

Consumption power of people in those geographies will improve on the back of the positive changes in economic conditions generally seen across most parts of Africa. It is hoped this will spur data adoption.

Shuter says the consumer market in those countries is expected to generate revenues of R575bn in the next four years through the purchase of voice packages and Internet data, as well as digital services such as music and video streaming, and mobile money.

Since March, Shuter has visited 10 countries where MTN operates to understand the operating environments. He says the group is in the biggest countries and in the No1 position in 14 markets.

The overall view is that the group has identified weaknesses and its strategy targets core drivers of value creation over the medium term. But the success of BRIGHT will lie in the execution.

Deutsche Bank has upgraded MTN to a buy as it sees operational benefits in Nigeria and SA towards the fourth quarter. "We believe that operational green shoots could appear in Nigeria and SA towards quarter four of 2017," writes Deutsche Bank analyst John Kim in a note to clients. There "could be a floor for operational performance in major markets, cash flow-related issues and macroeconomic conditions in Nigeria".

However, not all the analysts are impressed.

Herenya Capital Advisors founder Petri Redelinghuys says some investors are looking elsewhere for better returns.

He says SA is still struggling, especially in the contract market, and pressure to bring down data prices may put further strain on the business.

MTN expects SA to produce mid-single-digit growth in revenue.

Redelinghuys also flagged political tensions in the Middle East, which could destabilise the group’s operations in that region, especially in Iran, which has shown impressive growth during the half-year. MTN repatriated R12bn in loans and dividends out of Iran and expects to withdraw a further R5bn before the end of its 2017 financial year.

In Nigeria, the group is preparing to list its unit as part of the settlement agreement with regulators. This is pencilled in for completion in 2018.

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