SIMON BROWN: I’m chatting now with Chantal Marx, head of research at FNB Wealth and Investments. Chantal, good morning, I appreciate your early morning time. MTN (released) annual results yesterday (March 10, 2021) The market was a bit sanguine. My sense is that I want to look at these companies almost as utilities and, aside from the dividend, which they cancelled this year but promised one next year, they are starting to price themselves as utilities. Your take on the numbers and the investability in our telco space?
CHANTAL MARX: Yes, this was quite an interesting result. The first thing that I saw was that they’re only going to pay a R2.60 dividend next year and they aren’t going to pay a final dividend this year. I think that’s what most investors saw, and that’s why you saw the share price come under quite a bit of pressure in the morning. But as I scratched through the numbers – and I suspect the rest of the market did the same – the reason behind not paying a dividend is actually pretty solid. They want to reduce holding-company debt and they’re having a bit of trouble getting cash out of Nigeria at the moment, so it just makes sense for them from a cashflow perspective to rather focus on the debt than to pay a dividend and effectively pay a dividend on money that they don’t already have.
So I’d prefer this route as well. And the fact that the result was actually very, very strong, I think made the market forgive them a little bit. And then on the utility story – voice and data – absolutely. This is a utility. The telco business is what it is. You are probably going to get kind of mid-single-digit returns or growth from that business, and it will continue to generate really good cash flow.
But what I find very interesting from this result, in particular, is its Ambition 2025 strategy, which is a new strategy for the new MTN of 2025.
In it there is a big focus on fibre, there’s a big focus on fintech, which is not utility-like at all. And the fact that they are probably going to in time get third party investors – which tells me they’re probably going to list some of these businesses over time. I think [it’s] a very, very sharp plan.
I think it’s ambitious, but they think so too. But that could really unlock quite a bit of value in this company.
SIMON BROWN: I take your point. And change them from that – I don’t use ‘utility’ in a bad sense – into sort of a tech company.
MTN or Vodacom? Do you have a preference, or is it both, or perhaps neither?
CHANTAL MARX: My heart says MTN, but my head says Vodacom. There are very good reasons why MTN is a high-risk story. This situation where they’re struggling to repatriate cash out of Nigeria is just a case in point. They also have legal troubles in Syria now, where they are under some form of a curatorship. And because they’re operating in these countries that often have volatile and strange regulatory environments, they are open to a bit more risk.
When you are investing in a telecoms company, you are actually looking for more utility-like returns. And in that case, I think Vodacom makes a lot more sense in that it’s exactly what it sets out to be.
It almost provides a return profile similar to a telco in a developed market. I think that you’ll probably get more stable returns from Vodacom over time. But, as I said, my heart says MTN is going to do great things. I’m just not sure if they’ll be doing great things every single year, or if other externalities will continue to trip them up along the way.
SIMON BROWN: And that’s typically been my sense of MTN and Vodacom. MTN is your risky, Vodacom is your boring. You take your pick or, some people say let’s do a bit of both.
Chantal Marx is head of research, FMB Wealth and Investment. Thank you for your early morning time.