SIMON BROWN: I’m chatting now with Chantal Marx, head of research at FNB Wealth and Investment. We’re chatting about wealth and investment, chatting about MultiChoice.
Chantal, good morning, I appreciate the early morning time. I want to get into the investment case for MultiChoice. Before I do, there’s the Nigerian issue that is sort of in the corner. Nigeria is kind of prone to occasionally hit one of our JSE-listed companies with giant numbers. This time it’s a R65.5 billion tax bill, if my conversion rates are right. If one was a MultiChoice investor, is this something to really worry about? Certainly MTN (has) negotiated some of its fines down a bit (and) some of them down quite markedly.
CHANTAL MARX: Yes. I think the tax authority is actually a little bit easier to deal with, because the laws governing the tax regime in Nigeria are quite set in stone. They’re quite advanced, so when you are in front of a court, the law will likely take its course. What happened with MTN and that huge fine that really blew up their balance sheets as well a few years ago was the SIM-registration debacle, the fact that they weren’t registering SIMs quickly enough and government accused them of, by not registering SIMs quickly enough, aiding the situation in the north of Nigeria, where they were battling with terrorist groups. So it’s a completely different scenario for MTN with that big fine.
I think the MultiChoice fine was also taken out of context a little bit because, as MultiChoice indicated in the Sens announcement, it was going to be the lower of that disputed amount, or the previous-year-plus-10% tax bill that they had to pay before appealing that amount. So I think it was a bit sensationalised as well.
SIMON BROWN: Okay. So let’s park Nigeria. I take your point that the tax laws (are) more codified. The SIM registration was a whole lot less so and a lot more emotional around, as you say, the terrorism in the north.
The investment case for it? A lot of folk look at it and think, oh no, it’s DStv, we’re being overcharged; people are shopping down from premium packages. But there’s a lot more to it. There’s the rest of the continent, which is growing fast, there’s Showmax, which is looking to be the sort of Netflix of Africa. There’s actually not a bad investment case here.
CHANTAL MARX: Yes, absolutely. People all hate DStv, but they all have it because people love sports. So I think sports is an underpin for DStv subscriptions. Even though people are complaining about it around the braai, they won’t miss the rugby or the soccer to save their lives.
So I think that that’s an underpin. Their investment in local content is par none. And if you look at the kind of local content that we’ve been getting recently, the quality is fantastic. If you haven’t watched Devilsdorp or Reyka, please do. It’s fantastic.
And then you have this rest-of-Africa business, which provides massive optionality and is basically valued at a negative value by the market.
One must remember that in the rest of Africa you have underdeveloped broadband infrastructure, which means that the traditional MultiChoice business does quite well there.
You also have a situation where electrification is still taking place and, as electricity gets rolled out and continues to get rolled out across the continent, the first thing that people are going to invest in is their televisions and their entertainment. I think that’s exactly where DStv has quite a comfortable first-mover advantage at the moment.
SIMON BROWN: I see what you’re saying there. I remember 15 years ago, speaking to Wayne Samson at Ellies; they used to do DStv installations and they couldn’t keep up with demand. As we were electrifying our more rural areas, I remember doing a road trip and the satellite dish was almost our national flower. You could drive anywhere in our country – on the dirt, on the bumpiest of roads – and there were satellite dishes.
CHANTAL MARX: Yes. And I think another important thing to remember about MultiChoice is that they offer a variety of packages and price points. So even though you and I will think about a premium subscription, that it’s so expensive, and you’ve got the Explora and you don’t even know if you’re using it properly, the reality is that a lot of people are paying R25 to R30 a month for five or six channels, which are really clear quality. That’s good enough for them, given the price point.
So you have to consider that there’s more than just the Explorer package that they have on offer. I think the tie-up on the Explora package and on these kind of premium packages with the international streaming guys is brilliant. I think the involvement of the tie-up between Showmax and HBO is a really positive one, and the fact that Netflix and Amazon are willing to work with MultiChoice is (also) a really positive thing. They’re not necessarily looking to unseat the company.
Sure, I think MultiChoice has its risks. Nigeria wow, currencies whoa – and content costs continue to increase.
But I do think that at the moment, and especially at the current discount that it’s trading at relative to its peers and its history, the positive outweighs the negative.
SIMON BROWN: I take that. There has to be some risk. If there isn’t risk, there’s no reward. As you say, you’re pretty much getting the rest of the continent for free, for mahala.
Chantal Marx, head of research at FNB Wealth and Investment, I appreciate your insights this morning.