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Set free by Naspers, MultiChoice plots its path

Analysts say MultiChoice is still generating cash and has the potential to grow.

Discarded by its globe-trotting parent Naspers after more than three decades, African pay-TV heavyweight MultiChoice Group is facing an uncertain future.

The broadcaster of English Premier League soccer and hit dramas such as Game of Thrones will be spun off by Naspers in Johannesburg next year, creating a newly listed company. Estimated valuations by analysts and investors have ranged from $5 billion to $6.6 billion – plus the potential for dividends – compared with zero as part of the wider Naspers empire.

Naspers shareholders receiving stock in the new company will be hoping MultiChoice can continue to find subscribers willing to pay R959 ($64.60) a month in South Africa, as streamers such as Netflix target similar customers with good broadband connections. There’s also the challenge of stabilising and improving the business in the rest of Africa, which has dragged down profit in recent years as economies struggle.

“At the right valuation, investors will want to hold MultiChoice,” Peter Takaendesa, a money manager at Mergence Investment Managers, said by phone from Cape Town. “It’s still generating cash, and the business has the potential to grow more over the next decade or so.”

Perfect sense

For Naspers, the separation makes perfect sense. Since striking gold with an early-stage investment in Chinese tech giant Tencent in 2001, the company has sought to redefine itself as a global internet business rather than a South African TV and newspaper provider. However, its 31% stake in Tencent has proven a curse as well as a blessing, with the market valuing the shareholding at more than Naspers as a whole –meaning businesses like MultiChoice have been worth nothing to investors.

Naspers shares have declined 7.9% this year, valuing the business at R1.4 trillion.

Source: Bloomberg

To address the anomaly, Chief Executive Officer Bob Van Dijk has been looking to generate cash, selling some Tencent shares and Indian e-commerce startup Flipkart earlier this year. The MultiChoice spinoff represents the next phase – and this time shareholders have the opportunity to benefit directly.

“Given the scale of MultiChoice within the Naspers group, it was always going to be key to some form of restructuring,” said Alastair Jones, an analyst at London-based New Street Research. MultiChoice is so different from Naspers’s other assets, that a separation is a “sensible option,” he said.

Expensive packages

MultiChoice’s DStv service holds a special appeal for sports fans, with cricket, rugby and Formula One joining the most popular soccer coverage. However, its success depends on customers having enough disposable income to justify the cost of the subscription, and even in South Africa the most expensive premium segment is experiencing slowing growth, according to financial statements for the year through March.

That issue was compounded following the oil price collapse starting in 2014, which particularly hurt the crude-dependent economies of Nigeria and Angola. With unfortunate timing for Naspers, Netflix gained approval to operate throughout the continent in 2016. It charges R129 a month plus data costs in South Africa and competes with MultiChoice’s own video-streaming service, Showmax, which specialises in more local content. Chinese providers and Canal+ of France also provide competition to DStv elsewhere in Africa.

“The world is changing and it is becoming a more digital,” Nick Kunze, a money manager at Bridge Fund Managers, said by phone from Cape Town. That said, “not everyone has broadband, so it will take a while for Netflix to catch up.”

Regulator dispute

Another simmering issue is a spat with a Nigerian regulator, which has frozen DStv prices. The move serves as an uncomfortable reminder of challenges experienced by Johannesburg-based wireless carrier MTN, which is facing more than $10 billion of claims in Africa’s most populous country. Like MTN, MultiChoice has taken the matter to court.

The dispute is about service quality as opposed to prices, Tunde Irukera, director-general of Nigeria’s Consumer Protection Council, said in an interview on Monday.

In total, MultiChoice had 13.5 million subscribers as of the end of March, compared with 11.9 million the previous year, and generated annual revenue of R47.1 billion. Just more than half of the subscribers are in South Africa. In contrast, Netflix will probably have 500 000 African subscribers by 2020, according to Jeffrey Wlodarczak, CEO of New York-based Pivotal Research Group.

“We have stabilised our African business outside South Africa and expect it to return to profitability,” MultiChoice Chief Executive Officer Imtiaz Patel told investors on a Monday call. “There is still an enormous opportunity for growth – if we keep acting as efficiently and focused as we have been in the past two and half years. No doubt we are through the worst in our African business.”

© 2018 Bloomberg L.P
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You’re in for a very nasty shock. The consumer is barely surviving from month to month and DSTV/Multichoice is now being considered as luxury by the middle class. The consumers are opting for the cheaper options – UNLIMITED WI-FI packages. As to Nexflix they’re already offering better deals. Before December 2018 DSTV/Multichoice will have explain to the S.A. Consumer: WHY DO WE PAY R1000,00 FOR PREMIUM BUT THE AFRICAN COUNTRIES R450,00 FOR THE SAME SERVICE?????

Hmmm quite a big difference in subscription price between DSTV and Netflix! In a recession I wonder whose base will grow quickest? The answer is a no brainer!

“At the right valuation, investors will want to hold MultiChoice,” – What absolute poppycock. The digital age is slowly but surely teaching Multichoice how poor their ability is to satisfy their customers needs. The world is getting more tech savvy.
If Multichoice were smart they would offer sport only packages and allow customers to design their own bouqets. Failure to do so will simply lead to a slow and inevitable collapse of their (now) failing business model.

Mind blowing bulls$%t vendors paid advert by NASPERS.

The statement ” is still generating cash and has the potential to grow.” oh

dear yes it “is still” generating cash wow!

never mind the great potential of that disappearing and the potential of the value to go to zero..

analyst :” i aint gay, but 20 bucks is 20 bucks and t’is a recession.”

Whether shares or investment products or cars or houses : first question should be : if it is such a great thing, why sell it?

DSTV does not appear to need to raise capital for itself, which would have been a prime reason for going to public markets.

My kids laugh at the idea of paying R1000 a month for media that is available when presented not on demand, with 18 minutes of advertising. Were it not for sport and news and laziness, we would drop DSTV and only have Netflix. I suspect that 500,000 estimate is WAY off – many of us have US accounts from the old days of VPN access

So we can expect more and more adverts and repeats. please somebody come up a sports package so that I can dump DsTV

I’m on Netflix now, DSTV gone the way of the dinosaur. Only keeping it so I get Showmax and when I’ve finished GOT its gone. I’ll go to a pub to watch rugger. R1, 000 a month … greedy little piggy’s

I cancelled DSTV two months ago and have never looked back. Now pay R140 to Netflix for HD shows of MY CHOICE. And you get the whole series of each drama with NO ads. Internet charge is R380 per month but need the latter for my PC in any event. DSTV is a shocker. I didn’t realise that DSTV only charge R450 per month for premium in other countries though until I read comment herein.

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