MTN subscribers up 37%

MTN subscribers rise 37% in one quarter on the back of their international acquisition and expansion strategy. Classic Business Day looks at MTN with Greg Potter from Nedcor Securities

LINDSAY WILLIAMS: MTN subscriber numbers for the quarter ended 30 September 2006 increased by 37% – that’s following the Invescom acquisition, but even if you strip out Invescom subscribers were up 8% which isn’t bad in one quarter. Greg, these numbers are particularly good – this company is now becoming a real player…

GREG POTTER: The market liked these numbers. They started to move yesterday with good local and foreign demand, and that followed on today – then when these numbers came out they shot the lights out with some fantastic volumes going through, if I’m not mistaken close on 10-million MTN traded. That’s phenomenal volume for MTN…

LINDSAY WILLIAMS: Yes, it was number two on the JSE in terms of volume traded – they went to R69.40 which is 10 cents higher than the all-time record high back on 8 May 2006. It’s had a great run with 9.52-million shares trading today. That’s a big number…

GREG POTTER: It’s a big number. I think you’ve got to break down the numbers that they gave out – South African subscribers grew by about 7% and that’s probably slightly better than what the market was going for as the domestic market becomes saturated. I think their overseas strategy has been phenomenal – this is where they’re at a total advantage to Vodacom. Through their deal with Vodafone in the UK Vodacom is restricted in going outside of Southern Africa as it were. I think all in all MTN’s numbers were up 37% because of acquisitions into the rest of Africa.

LINDSAY WILLIAMS: They’ve now got 34,768,000 subscribers as of 30 September – that includes the Invescom numbers.

GREG POTTER: I just like their overseas strategy. Moving back to South Africa – they say they’ve got about 11-million subscribers. Vodacom if I’m not mistaken had over 20-million subscribers in South Africa, and Cell C if I’m not mistaken had close to 3-million subscribers. So you’re talking about close to 35-million subscribers in South Africa with a population base of 44-million. If we aren’t close to saturation then I’m not too sure what we are…

LINDSAY WILLIAMS: Which is exactly why if you were going to invest in the mobile telephony business it would be MTN because of its geographical diversification…

GREG POTTER: Yes. The only other way that you can grow earnings is by raising your average revenue per user (ARPU) which they have managed slightly from R159 to R162. But you can see that if we have reached saturation in South Africa – and we were now relying on the ARPU, which is up 1.5% – we wouldn’t really be holding a share. I would imagine this sector would then be call ex-growth, and we’d be looking in other sectors – so I think their diversification has been key.

LINDSAY WILLIAMS: Irancell of course was switched on a few Saturdays ago – that’s going to be the next thing. They’ve got around 300,000 subscribers already. We are going to have to wait and see in the next set of numbers exactly what that means for MTN. The other thing that is very interesting now is there all sorts of rumours going round about Telkom selling its stake in Vodacom – so that will be 100% owned by Vodafone. Apparently they’re investing into MTN – what did you make of that rumour?

GREG POTTER: I would imagine Telkom is sitting back and saying where is expansion going to come from with fixed lines under a lot of pressure – margins are going to be coming down, and they will need to find growth somewhere – so you know the market didn’t really look at that as pie in the sky sort of rumour. The market did react on Monday – that rumour came out on the weekend, and the market reacted selling Telkom down and buying MTN. When the market reacts it means they’re taking a bet on that. I believe the management of Vodacom have denounced that, but I just think that Telkom is sitting with an asset that’s potentially ex-growth, and it’s becoming a bit of a worry to them.

LINDSAY WILLIAMS: A particularly dodgy stockbroker phone me this morning and said he was buying MTN because 21% is owned by management, and a couple of very wealthy Arab’s are coming in and they’re going to take MTN out at R75 per share. That’s a nice story, and it’s a very good excuse to buy MTN – but of course there is no chance of a management buyout around R125-billion. Also, it’s widely held by people like Old Mutual and all the other big fund managers, and they wouldn’t settle on R75 per share. Maybe around R95…

GREG POTTER: I agree. If you’re looking at the only growth stock in the telecommunications sector I’d agree they wouldn’t exit at the moment – they would want to be in for the ride. It has been a lacklustre stock for a couple of months – I think they would want a return.

LINDSAY WILLIAMS: I don’t want to do Vodacom out of a positive announcement – the original Vodafone shareholder agreement has now been changed, so they are allowed to go beyond the geographical boundaries we spoke about earlier – but they are step behind. MTN has stolen a march on them. What do we do now? Do we carry on at R69.20 after a high of R69.40 which was very close to all-time record highs? The momentum is there – let’s not get to fancy as simple analysis says we should still buy it…

GREG POTTER: I think so. I think there is still a lot of foreign flow going in with a lot of foreign demand. We’ve got a fair value or a twelve-month price target of R75 – we are nearly there, but as you said the momentum is still with it – and if there’s momentum you hold on to your stock.

Source- http://transcripts.businessday.co.za