SIMON BROWN: I’m chatting now with Martin Smith. He is a portfolio manager at Anchor Capital. Martin, MTN issued a quarterly update for the period ending 31 March – so pretty much the first part of this year. We’ve seen some updates coming through from them in terms of some of their listed subsidiaries in Ghana, Nigeria and the like. This update here was a good number. The market really, really liked it, pushing the stock up 11.5% on the day.
MARTIN SMITH: You mentioned Ghana and Nigeria there, and those numbers really were very, very strong from a revenue perspective. We thought that the numbers would be quite good, but SA was up 11.8%, which is way ahead of expectations, specifically in a highly penetrated market like we have in South Africa. It was an incredible result. And we also have to remember that they are base effects in so far as Covid is concerned with MTN, because they weren’t specifically affected by Covid, like a lot of other businesses. So 11.8% on quite a healthy base in South Africa is a great operational number.
SIMON BROWN: And they are growing margins left, right and centre. The group margin, even in South Africa, they managed to not just grow. I agree with you; in a saturated market like ours 11.8% is massive. And they then picked up that margin at Ebitda level from what, 36.6 to 39.8%; that is materially significant. They are very, very much pumping on all pistons.
MARTIN SMITH: Yes, absolutely. But it’s not just the operational side of things which is, as we could have seen yesterday, really, really great, but it’s also about the value-unlock story in terms of their fibre business, the tower side of things, the fintech businesses. So it’s all this kind of corporate action that’s going to unlock value in the share as well.
So you’ve got two sides of the coin. One, operationally they’re delivering and, two, they’ve unlocked value as well, which, like we’ve seen with something like Amazon and their Web Services business, can be value-accretive to shareholders over time. We’ve been holders of the shares for a while. Obviously, the share bounced quite a lot yesterday. I think it grinds higher from here.
SIMON BROWN: Even at these levels; it’s about a 10/11 forward PE. That’s not a killer number. You’re holding MTN – do you hold it as a preference over Vodacom or a bit of both?
MARTIN SMITH: As a preference over Vodacom. Again, it comes with a little bit of a health warning. I think you have these events, these kinds of ‘something out of Nigeria’, for example, which happened in December with the ID numbers linked to SIM cards. You have these risks associated with the business. The market’s giving them the benefit of the doubt, but it does come with a health warning. That could happen in a month or six months or never happen, but it is something just to consider.
But ultimately I still really like the stock, am happy to hold it and definitely prefer it over Vodacom.
SIMON BROWN: Looking at the two together, MTN has massively outperformed. I’m definitely on the right side. It closed yesterday at R99.03/share.
The Resi 10 – the market yesterday had a bit of a stormer; banks were up nicely, but the resources were kind of coming back to the party. We get that underlying story, which is commodity prices, copper palladium, iron ore. Across the board, commodities are looking strong. The miners had been sort of pausing a bit. One day is not summer, but there is a bit of a return to that trade, certainly yesterday.
MARTIN SMITH: Yes, Simon. A couple of things on that. Like you’ve mentioned, the commodity prices are skyrocketing at the moment. Copper is at a 10-year high, iron ore at a 10-year high, palladium at an all-time high. The Bloomberg Commodity Index is at levels that we haven’t seen since 2011. So commodities are absolutely skyrocketing like I said.
But we also need to look at the spot multiples that a lot of these businesses are trading on. They’ve built a lot of fat for commodity prices actually coming off, so I think there’s an opportunity still within the mining space in South Africa.
The last point I want to make, and it’s quite an interesting one – I was having a chat with a colleague of mine about it last night, actually – is that on the JSE we are used to kind of the commodity plays and what these guys are doing. But I think the rest of the world is now starting to wake up to say there’s a commodity super-cycle that’s maybe going on here. And maybe there’s an opportunity because look at the multiples these guys are trading on and look at what commodities are doing. I think we’ll see some more flows from the rest of the world because we’ve got to remember that commodities like we have on the JSE, aren’t a massive part of the world’s indices. So people are now starting to wake up and I think we’re going to see some flows coming in from that side of things.
SIMON BROWN: Our exchange is a mining exchange. That’s a great point. And the rest of the world is not. We are used to it. But I like your other point. They’ve built some fat in, in case prices came back. Prices are not coming back just yet.
Martin Smith, portfolio manager at Anchor Capital, I appreciate the early morning.
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