MTN holds tight to its belief in Iranian promise
Nigerian woes and US hostility to Iran detract from market potential
● When MTN first ventured outside SA in the early years of the century, there was caginess among an investment community not sold on the mobile market on the rest of the continent and in the Middle East.
News of MTN’s initial foray, 17 years ago, into Nigeria, which would eventually overtake its domestic market, was accompanied by a falling share price as investors felt that the operator was taking too great a risk.
More than a decade has passed and, for the most part, MTN’s ambition to become Africa’s largest mobile operator has paid off handsomely for shareholders.
It hasn’t been without its troubles, however, namely in Nigeria, where run-ins with the regulator came within inches of a multibillion-dollar fine three years ago.
From their peak in 2015, MTN’s shares are now close to 60% lower, trading at their weakest levels (around R100) in eight years.
Nigerian woes and slowing growth in SA, because of stiff competition, have created a perfect storm.
The one silver lining seemed to be MTN’s 49% shareholding in its Iranian business, a market that has posed significant challenges because of geopolitics.
Under former US president Barack Obama, it seemed relations were thawing, meaning MTN could fully realise the value of its investment. However, US President Donald Trump has reimposed sanctions on Iran, MTN’s third-most profitable market.
The sanctions mean MTN will probably not be able to get its R3.4bn cash pile out of Iran in the short to medium term, and its business there will also suffer as economic growth flags.
Fitch’s BMI Research recently downgraded the country’s real GDP growth forecast for next year to just 0.8%, from 4.5% previously.
Despite its travails, a senior executive close to MTN and central to its 2005 entry into Iran believes the company will be “proved right” in its decision to remain.
Speaking to Business Times, the executive said that should an amicable and sustainable settlement finally come to Iran, “which I believe it will”, the Iranian business would “make the South African and Nigerian markets look very small by comparison”.
With its population of 83-million people, Iran is the mobile operator’s second-biggest market, behind only Nigeria (53-million), in terms of subscribers. Its 44.6-million customers in the Middle Eastern nation account for a fifth of its overall subscriber base of 221.3-million. SA has over 31-million subscribers, with the highest revenue per user.
Iran is “the biggest, most educated and lucrative market” in the Middle East, with the second-largest oil reserves, said the executive.
Even if sanctions were reimposed, “this game is not over by a very long shot … It’s a prized asset.”
In its latest interim results, to end-June, MTN said SA contributed R7.5bn to the mobile operator’s earnings before interest, taxes, depreciation and amortisation, Nigeria accounted for R7.4bn, with Iran contributing R2.6bn.
Data shows that Iran is MTN’s most sophisticated market — users there consume far more data than in any of its other markets.
MTN’s ride-hailing app in Iran is now used to arrange up to 1.2-million rides a day, which would rank it among Uber’s biggest markets globally. The mobile operator has an effective stake of about 40% in the ride-hailing business, called Snapp. MTN has similar stakes in food delivery business Snappfood and hotel booking platform Snapptrip.
As much as MTN executives champion the Iranian business, Alastair Jones, a UK-based analyst at New Street Research, still regards the business as a “risk”.
Further denting analysts’ views of the mobile operator is its South African business. JPMorgan said in a research note that
Iran would make the SA and Nigerian markets look very small by comparison
though MTN’s management team was delivering on key operational metrics, “our net debt forecasts and view on South African industry prospects temper the company’s dividend growth outlook”.
This weak outlook for dividends meant the stock was unlikely to rise meaningfully from its current levels, JPMorgan said.
MTN’s net debt rose to R69.8bn at the end of June, from R57.1bn six months earlier.
MTN CEO Rob Shuter said debt would be reined in during the second half thanks to the sale of the business in Cyprus and public listings of the Nigerian and Ghanaian units.
A Bloomberg report this week speculated that the mobile operator was exploring a sale of shares in African online retailer Jumia and valued the company at as much as $1bn, according to people familiar with the matter.
According to the agency, quoting unnamed sources, MTN was considering an initial public offering of the Amazon.com Incstyle business on the Nasdaq or New York Stock Exchange.
MTN, which denied the speculation, is the biggest shareholder in Jumia with a 40% stake.