Cellular giants coin it for BEE shareholders

AS LICENSED oligopolies, MTN and Vodacom enjoy the ability to pump out seemingly unlimited amounts of cash and profits, which is why Vodacom’s Yebo Yethu and MTN’s Zakhele are generating such attractive returns for their black empowerment shareholders.

However, in recent months, prompted by a tougher stand by the regulator, there has been much talk of increased competition and reduced charges in the cellphone market. This is good news for consumers, but possibly worrying for Yebo Yethu and MTN Zakhele shareholders as it may put pressure on the giants’ generous dividends.

So far this appears not to be the case. The share prices of both companies and their BBBEE schemes continue to reach new highs.

In the case of MTN, even the news that it was required to pump billions of rand into the Nigerian market did not deter its move to higher levels. An MTN spokesman explained: “MTN Nigeria is self-funding its capex requirements.”

As a BBBEE investor remarked: “These cellphone companies spit cash, if they’re squeezed on cellphone charges, they’ll make it up on data.” Which is why MTN Zakhele was an exceptionally profitable investment for anyone who bought at the R20 launch price in 2010. Three years later, in terms of the scheme’s plan, MTN Zakhele was due to begin trading in the OTC market. However after much fanfare, embarrassing “technical glitches” halted trading.

They were eventually ironed out in February, and the share began trading at R95. It has since moved up to R126.

MTN donated R1.29-billion of the R8.1-billion initial funding required to buy the 4% stake in the company. About 120 000 BBBEE investors invested a further R1.6-billion and the remaining R5-billion was debt funded. Dividends paid out since 2010 have reduced this by R1.8-billion.

The only drawback relates to MTN’s decision to launch its own trading platform and not use Equity Express. One investor said this resulted in trading “lacking visibility” and being more cumbersome.

On the issue of the Financial Services Board’s proposed clampdown of OTC platforms, an MTN spokesman said last week that it had submitted comments to the board.