MTN prom­ises more su­perb growth

Mar­kets in Africa and Mid­dle East could yield many mil­lions of new sub­scribers

Finweek English Edition - - Creating wealth - LU­CAS DE LANGE

WPrice fol­lows growth and the key to su­perb per­for­mance in the stock mar­ket is pick­ing the com­pa­nies with the best po­ten­tial earn­ings growth. Ev­ery­thing else is sec­ondary – Richard Driehaus, well-known and very suc­cess­ful US port­fo­lio man­ager HEN A BRI­TISH port­fo­lio man­ager was im­ported by a South African fi­nan­cial in­sti­tu­tion about four years ago to fo­cus on growth shares, he was asked at a pre­sen­ta­tion which share he’d choose on the JSE as the one with the most po­ten­tial. His re­ply, with­out any hes­i­ta­tion, was MTN (see cover story).

That he made a good choice is again con­firmed by the group’s re­sults for the year to De­cem­ber 2006. Prob­a­bly the most strik­ing fea­ture was the enor­mous growth in its num­ber of sub­scribers. The fig­ure in­creased by 73% to 40m, which to a large ex­tent was thanks to the takeover in July of In­vest­com, a cell­phone group op­er­at­ing in the Mid­dle East and Africa. The price was US$5,5bn (around R40bn).

But even with­out In­vest­com, MTN’s num­ber would have shown im­pres­sive growth – up by 36%. In­vest­com it­self pushed up its to­tal by 38% since July.

How­ever, the most im­por­tant thing for in­vestors – who, like Driehaus, fo­cus on the mo­men­tum of a com­pany’s earn­ings growth – is that the fu­ture po­ten­tial is still so great. The pen­e­tra­tion of mo­bile telecom­mu­ni­ca­tions in the coun­tries where MTN car­ried out takeovers is still low.

There are for­eign ex­change and reg­u­la­tory risks at­tached to emerg­ing economies, but those are off­set by the spread over sev­eral coun­tries it has al­ready achieved.

Group in­come rose by 49% to R52bn (32% if In­vest­com’s R6bn were left out). Nige­ria made the best progress in per­cent­age terms, grow­ing by 31% to R15bn, with SA not far be­hind with 22% to R25bn. In ad­di­tion, Nige­ria’s mar­gin in­creased by 4% to 57,2%, while SA’s also was a strong 33,9%. MTN’s mar­ket share in Nige­ria is 46%, af­ter its sub­scriber tally surged by an amaz­ing 46%.

In Iran there were 154 000 sub­scribers at end-De­cem­ber, fewer than ex­pected. But there had been de­lays in launch­ing the prod­uct. MTN Group’s in­ter­est is 49% of MTN Iran­cell, while 51% is owned by the Iran Elec­tronic De­vel­op­ment Com­pany. There’s been strong progress since the end of the fi­nan­cial year and by end-March it al­ready had more than 1m sub­scribers.

Iran’s pop­u­la­tion is around 70m and cell­phone pen­e­tra­tion is still very low. Man­age­ment hopes to at­tract 6m new sub­scribers this year. And the Su­dan now also has more than 1m sub­scribers.

Earn­ings per share were 584,7c (338,2c in the pre­vi­ous year, but this fig­ure cov­ered only nine months) and the div­i­dend was in­creased by 38,5% to 90c.

As for its prospects for the cur­rent fi­nan­cial year, man­age­ment ex­pects that it will at­tract a mas­sive 16m to 17m new sub­scribers. How­ever, earn­ings growth could suf­fer, be­cause of its large ex­pan­sions in mar­kets such as Iran and Su­dan and also be­cause of the tax ben­e­fits in Nige­ria that came to an end at the be­gin­ning of this month.

At its cur­rent price of around R96/share it’s at a high price:earn­ings ra­tio of 16. The div­i­dend yield is only 0,94%. But it’s likely that the dis­tri­bu­tion will be in­creased sharply again.

Driehaus, who has spent a life­time track­ing down com­pa­nies with ex­cep­tional growth po­ten­tial, says his ex­pe­ri­ence is that they are al­most al­ways ex­pen­sive and that one needs to be coura­geous to buy them. How­ever, the re­wards can be great.

MTN... SU­PER GROWTH STOCK

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