‘Trust my judge­ment’

MTN’s Nh­leko up­beat con­cern­ing growth prospects

Finweek English Edition - - Companies & markets - CHIMWEMWE MWANZA

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.

Phuthuma Nh­leko

Fo­cus now is to halt fall­ing ARPUS.

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