Nigeria continues to hurt MTN
Legal disputes have raised business risk, says Afrifocus
MTN may have resolved a bruising Nigerian dispute which has contributed to a R41bn fall in its market value, but the damage to the mobile operator’s investment case has been done, a Johannesburgbased wealth manager says.
MTN may have resolved a bruising Nigerian dispute, which has contributed to a R41bn fall in its market value, but the damage to the mobile operator’s investment case has been done, a Johannesburg-based wealth manager says.
“We are seeing little value in staying invested in the company, where the continued legal disputes in Nigeria have resulted in an increase in the business risk,” Afrifocus Personal Wealth, which has a sell recommendation on the stock, said in a note to clients this week.
In August, Nigeria’s central bank told MTN to return as much as $8.1bn it claimed the company had moved out of the country illegally. Days later, the country’s attorney-general told MTN it also owed $2bn in unpaid taxes.
The mobile operator, which had barely recovered from a $1bn fine for not disconnecting unregistered SIM cards in the West African state, had to watch its share price slide in the second half of the year as the claims piled up against it.
Even though it recently agreed to make a far more palatable $53m payment to resolve its dispute with the Nigerian central bank, the stock has barely recovered.
It was trading at R86.08 on Friday afternoon, versus R107.34 on August 29 2018.
Afrifocus said that “after a disastrous couple of years”, MTN will report a cut in its annual dividend from 700c for financial year 2017 to 400c when it releases its 2018 results in March 2019. That will put the share on a dividend yield of 5.2%, versus Vodacom’s beforetax dividend yield of 6.8%, the stockbroker and wealth manager said.
Some investors prefer stocks with higher dividend yields — a ratio measuring cash payouts against a company’s share price.
Afrifocus said MTN is operating in “distressed economies”.
Nigeria, its largest market, is struggling amid lower oil prices, while extracting cash from Iran, the company’s third-biggest market, has been made difficult by US-imposed sanctions against that country.
“The company has been involved in continued [falling outs] with the Nigerian government, and have had to pay hefty fines. What is next?”
S&P Global Ratings last week warned that it could downgrade MTN’s debt if the mobile operator increased its relative exposure to Nigeria, which has a lower sovereign rating than SA.
Fitch Solutions on Friday warned that political risks in Nigeria are building as the country approaches a “highly contentious” presidential election, scheduled for February 2019.
“We caution that this heightens the risk of political scrutiny and government intervention in the telecoms sector,” the research house said.
Nigeria has not been the only thorn in MTN’s side. In 2018, the network operator also had to put out regulatory fires in Benin and Cameroon.
But some analysts, including local money manager Vestact, which advocates long-term investing, are still optimistic about MTN, particularly as the world prepares for ultrafast 5G connectivity.
“There is no doubt that having operations in Nigeria and Iran is risky, but I think those risks are baked into the share price — that’s why the stock trades in the R80s and not in the mid-100s,” said Vestact portfolio manager Michael Treherne.
Vestact CEO Paul Theron said while the rest of the world is making progress in preparations for 5G connectivity, it seems as though SA keeps falling behind.
“Vodacom and MTN are pulling their hair out. We are buy-rated on both stocks. There is a new minister in place, Stella Ndabeni-Abrahams [under President Cyril Ramaphosa] — perhaps she will get things going?”
WE CAUTION THAT [THE ELECTION] HEIGHTENS THE RISK OF POLITICAL SCRUTINY AND GOVERNMENT INTERVENTION