Damage done to MTN investment
Nigerian disputes led to increase in business risk
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 said.
“We are seeing little value in staying invested in the company, where the continued legal disputes in Nigeria have led to an increase in the business risk,” Afrifocus Personal Wealth, which has a sell-recommendation on the stock, said in a note to clients last week.
In August, Nigeria’s central bank told MTN to return as much as $8.1bn (R112.1bn) it claimed the company had moved out of the country illegally. Days later, the country’s attorney-general told MTN it also owed $2bn (R27.7bn) in unpaid taxes.
The mobile operator, which had barely recovered from a $1bn (R13.8bn) fine for not disconnecting unregistered SIM cards in the west African state, saw 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 (R733.3m) payment to resolve its dispute with the Nigerian central bank, the stock has barely recovered.
It was trading at R86.08 on Friday afternoon vs R107.34 on August 29 2018.
Afrifocus said “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.
That will put the share on a dividend yield of 5.2% vs Vodacom’s before-tax dividend yield of 6.8%, the stockbroker and wealth manager said.
Some investors prefer stocks with higher dividend yields – a ratio that measures cash payouts against a company’s share price.
Afrifocus said MTN was 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 sanctions.
“The company has been involved in continued fallouts with the Nigerian government, and have had to pay hefty fines. What is next?”
S & P Global Ratings warned it could downgrade MTN’s debt if the mobile operator increases its relative exposure to Nigeria, which has a lower sovereign rating than SA.
Fitch Solutions on Friday warned that political risks in Nigeria were building as the country approaches a “highly contentious” presidential election in February 2019.
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.