Nige­ria con­tin­ues to hurt MTN

Le­gal dis­putes have raised busi­ness risk, says Afrifo­cus

Business Day - - FRONT PAGE - Nick Hed­ley Se­nior Busi­ness Writer hed­[email protected]­

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?”


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