‘Trust my judgement’
MTN’s Nhleko upbeat concerning growth prospects
CHIEF EXECUTIVE Phuthuma Nhleko seems to have spent the better part of his career at MTN proving analysts and the investment community wrong. Against the odds he has in recent times steered MTN into some of the riskiest political environments worldwide. A US$285m fee for an operating licence in Nigeria – dubbed the world’s corruption capital and lacking in telecoms infrastructure – is a case in point.
Recently a costly 300m euro investment in Irancell may have earned Nhleko the ire of the investment community but he feels vindicated that his boldness bore fruit for him and MTN’s shareholders.
Judging by MTN’s recent results – revenue up by 49% to R51,6bn and subscriber numbers shooting past the psychological 40m barrier – Nhleko’s projection of continuing growth in the MTN stable seems certainly not misplaced.
Short of only 1,5m subscribers to catch up with Egyptian operator Orascom’s last updated 41,5m subscribers, MTN looks set to displace it as the leading operator in the African and Middle East markets.
Says Nhleko: “Despite criticism from stakeholders I’m glad that we went into some of the so-called volatile markets long before other operators realised the value proposition in those markets. We at MTN don’t have a monopoly over wisdom. However, I must say that the prices that operators are now paying for telecoms assets in emerging markets don’t make for a business case.”
More often Nhleko has been accused of being fiscally conservative when bidding for assets, a factor some analysts blame for MTN’s failure two years ago to outbid Kuwait telecoms operator MTC in the race to acquire fledgling cellular operator Celtel. Celtel has since become a formidable competitor of MTN, vying for nearly every available telecoms investment on the continent.
Nhleko shrugs off the suggestion, saying that as a listed company, MTN has an obligation to prove to shareholders that every asset earmarked for acquisition will provide a return on investment. “It’s a pity we failed to acquire Celtel, but we atoned for that loss with the even better acquisition of Investcom.”
MTN’s acquisition of Investcom has seen it cover a swathe of countries extending from SA to Afghanistan with an estimated 501m subscriber base. “Penetration in some of these markets averages between 6% and 10%, giving us the required growth going forward.”
But it could be argued in the same breath that Nhleko’s vested interest in the cellular operator has somewhat underpinned MTN’s expansion strategy. Boasting a 7,9% interest in Newshelf 664 – an empowerment entity holding 18,6% in MTN – he’s by far its single largest black shareholder. With MTN’s current valuation sitting at R177bn, Nhleko’s stake in Newshelf is valued at R1,4bn.
In June last year Nhleko put a R265m bet on MTN’s share price when he entered into an 18-month forward contract to buy 4,1m MTN shares at a price of R63,97/share. At the time, MTN was trading at R55/share. The R8,3c/share difference represented the cost of financing the deal for 18 months.
Khulekani Dhlamini, an analyst at Renaissance Asset Managers, says: “By his actions Nhleko has consistently demonstrated to investors his belief in MTN’s growth trajectory.”
Nhleko’s focus for now is to grow falling subscriber average revenue per user (ARPUS, the standard measure for cellphone revenue) across the MTN stable. “We don’t see the need to have that huge subscriber base that adds little value to our margins.
“The reason for falling subscriber ARPUS in SA is that we’ve rebalanced our tariffs and introduced low-cost voucher denominations. That’s greatly impacted on our ARPUS. We intend to introduce a range of other low-cost basic data services across our networks as a means of mitigating falling ARPUS.”
Nhleko’s caginess makes it difficult to guess MTN’s next move. However, his hint that the fast-growing Angolan and Senegalese markets are worth watching is an indication that the market has certainly not heard the last of MTN’s acquisition activity.
Focus now is to halt falling ARPUS.