MTN Group preparing for a swift appreciation
MTN Group, once t he f ieriest of them all, more than tripled its share price between 2005 and early 2 0 0 8 , a nd f r om 2 0 02 to 2 0 0 8 outperformed the FTSE/JSE All Share Index by 400%.
Subscriber numbers were on an upward curve, earnings were multiplying and the business was reaping large sums to invest in its networks and new ventures − particularly in the rest of Africa.
In 2006, it established its presence in the Middle East and looked intensely into business in six more African markets in an attempt to invest in another big deal. At that time nothing was stopping MTN from becoming one of the biggest telecommunications players in the world.
MTN started in mid-1994 in South Africa and in four years grew to over 2m subscribers. With t he i ntense competition on t he r i se bet ween Vodacom, Cell C, MTN and Telkom Mobile, and subscriber numbers still growing rapidly, network providers are forced to explore different ways to attract or keep customers.
So in an attempt to obtain a bigger slice of the pie, MTN has proclaimed its initiative to allow its customers to share unused data forfeited by subscribers at the end of every month – a move that will benefit customers and could see Vodacom, the country’s biggest mobile phone operator, jumping onto t he bandwagon. Until recently, subscribers were not able to accumulate unused data, which is generally removed by the service provider on the advised date of expiry.
For a very long time mobile operators, including fixed-line telephone operator Telkom, have taken back unused data even though consumers pay for it – meaning that operators have been fully aware of unfairly taking money away from their customers and now they are ready to make amends.
To butter us up, MTN has launched an unlimited storage capacity cloud service costing R99 per month – also payable using prepaid airtime.
In the group’s recent annual results briefing, it announced an increase in subscribers by 7.5% to 223.4m, with revenue significantly jumping by 6.4% to a shade over R146.156bn. Data revenue rose massively by 33.2%, contributing R27bn to the group’s earnings.
To combat the power outages, a daily reality that is expected to last for the next three years, MTN has installed a 2MW power plant at its Johannesburg headquarters to reduce its reliance on Eskom. From a fundamental perspective MTN seems set to maintain good earnings and increased dividends, making it a good all-rounder.
POSSIBLE SCENARIO: MTN is still trading within its primary bull trend and has further upside potential as the third phase of this trend forms. Correcting since September 2014, a falling-wedge pattern is in the making, and I expect a positive breakout, confirmed above 22 800c/share, to appreciate the share price to the 36 445c/share targeted mark in the long term (one to three years). Because MTN would potentially embark on the third phase of its primary bull trend, upside to that target could be rapid.
ALTERNATIVE SCENARIO: The bullish continuation pattern would be negated through the lower slope of the pattern. Downside below 18 900c/share would prematurely end the second phase of the bull trend, and losses to either the 16 500c/share support level or the major support trendline could ensue.