Rob Shuter: Delivered a decent result for the three months to end-September. Picture: Bloomberg/Waldo Swiegers
Rob Shuter: Delivered a decent result for the three months to end-September. Picture: Bloomberg/Waldo Swiegers

The last time MTN’s share price dipped below R90, global stock markets were at the tail end of one of the biggest crashes in history.

The shares of the group, then chaired by Cyril Ramaphosa, were dragged to R84.15 in March 2009 — the month the JSE plummeted to a six-year low.

Nearly a decade later, SA’s main bourse has more than doubled in value, but MTN looks to be back at square one, despite having doubled its subscriber base to 225-million people.

The cause of the latest plunge below R90 is well documented: authorities in the group’s most profitable market, Nigeria, want another $10.1bn from the operator, which is yet to pay the final instalments of a $1bn fine from three years ago. The Central Bank of Nigeria is now trying to get MTN to return $8.1bn of "illegally" repatriated dividends, while the country’s attorney-general says MTN owes $2bn in taxes.

There are indications that the Nigerian government may be softening its tone, and the consensus among analysts is that a far more reasonable settlement will be reached in the next few months.

Given that MTN’s revenues this year are likely to be nearly 30% higher than they were in 2009 — thanks largely to the hugely expanded subscriber base — some investors may consider this an opportunity to buy the stock at a discount to its potential.

Based on some metrics, such as future earnings projections, MTN is hardly expensive relative to its peers. Yet most fund managers are keeping a safe distance.

Lester Davids, a trading desk analyst at Vunani-owned stockbrokerage Unum Capital, says the broker does not at the moment hold any MTN in its portfolios.

Davids says the Nigerian central bank’s demand will remain "a massive overhang" on the share until positive progress is communicated to the market. "We are, however, happy to trade the short-term volatility."

Imtiaz Suliman, portfolio manager at Sentio Capital, notes that the market still ascribes some value to the Nigerian business, which is responsible for a third of the group’s earnings. "So if the government does demand the full $8.1bn, which I think is [not very] likely, there’s more downside," Suliman says.

Regardless of the outcome, there’s simply too much uncertainty to buy more MTN shares for the time being, he says.

"And owing to the issues in Nigeria, the cost of capital has gone up permanently. Though the share has decreased quite a bit, the valuation of the Nigerian operation today is much lower than three months ago."

But Nigeria is not the only concern. For instance, due to US President Donald Trump’s sanctions on Iran, MTN cannot repatriate cash from the country, its third-largest market.

"You’ve also got high inflation in many of the African countries the company operates in, making real earnings growth not impossible, but a challenge," says Philip Short, portfolio manager of the Old Mutual Top Companies Fund.

Furthermore, there’s a risk that other countries will take their cue from Nigeria and look for ways to squeeze more money out of MTN.

"It doesn’t have to be a fight; it could just be an increased tax — a service tax or an educational tax. That’s a concern," Short says.

If you factor in currency weakness in most of MTN’s markets, which mitigates the effect of subscriber and revenue growth, forecasting numbers for the medium term becomes tough.

Short says rival operator Vodacom generates healthier returns on invested capital. "MTN should have higher growth on an earnings basis, but that is mitigated by high inflation, currency weakness and so on. On a like-for-like basis, if you put them both on the same dividend yield, I don’t think MTN is cheap."

Meanwhile, MTN CEO Rob Shuter will be disappointed that an otherwise decent result for the three months to end-September was overshadowed by the impasse in Nigeria.

Under different circumstances, the market may have cheered the fact that the operator grew service revenues by 10% in the quarter. That’s slightly slower than in previous quarters, but ahead of the group’s own medium-term target of upper-single-digit growth.

Despite all the noise, MTN Nigeria had a solid quarter, increasing service revenue by 17.4%. That’s well ahead of inflation, which is running at slightly more than 11%.

That result will help Shuter’s case as he pledges his commitment to the West African market, saying MTN will still pursue a listing there.

"MTN Nigeria’s plans to list have been challenged by the recent matters. However, MTN remains committed to the listing in Nigeria, and work continues in this regard," he said in a statement last Monday.

But, Short says, a listing is unlikely to happen until the dispute is resolved.

And while the group will probably want to retain as much ownership of MTN Nigeria as it can, it may actually make sense to list a relatively large portion of that business "to get better buy-in from locals so that you don’t have the regulator pushing you around so much".

Some analysts and fund houses remain bullish about MTN’s long-term prospects.

Vestact, for example, still recommends MTN’s stock to its private clients.

Vestact portfolio manager Michael Treherne said in a note last week that the common thread in MTN’s results across its key markets was the increase in spending on data.

"That is the reason to own this stock: 225-million people all spending more on data each year."

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