MTN FY numbers, in recovery mode

MTN had results yesterday. I guess the share price reaction tells you a lot about what the market thought, the stock definitely outpaced expectations, if you think that is important. It is at some level. The stock has disappointed bitterly after a period of sublime growth through the last decade, adding tons of customers and making sure that they were building out a continental champion, a brand that is well recognised alongside other multinationals, such as Coke. They are really that big in some territories. Michael is not a fan of MTN investor relations. I can see why, the presentation is still not up, the one from yesterday. That is, how should we say ..... not good. I sent a tweet to the MTNGroup handle, awaiting a reply.

So we shall have to do with the sheets and the emails, rather than the glossies. So here are the highlights and lowlights of the year. Revenues were flat, voice traffic fell (down 1,7 percent) whilst data traffic (up 143 percent) continues to become a much bigger part of overall revenues, 39.5 billion out of 146.9 billion Rand. The company managed to repatriate 6.3 billion Rand from Iran, which as they point out is "the entire amount due under the loan advanced for the licence fee in 2005." Group Capex was an astonishing 34.9 billion Rand, around 11 billion Rand spent here. Consumers are always demanding better services from their networks, this is a rather large amount to continually spend.

The reason for the positive reaction is simple. Last year, as they point out, was the worst in their 22 year history. Politics, economic factors beyond their control, and of course the big fine in Nigeria, as well as interruptions in that territory (which they refer to as material regulatory factors). Things in Nigeria have improved in the last quarter. I wonder what this recent bout of xenophobic attacks are likely to have on their business, it is one of the unknowns. I see that Nigeria are sending, or looking to send a delegation, to South Africa, that may include the foreign minister. This is a good thing to ease the tensions, incorrect rhetoric to the foreign community is not helpful for anyone. It is no different to Trump acting against others. No different.

The company took a 31 percent hit in EBITDA as a result of the Nigerian fine, fees associated with that fine, MTN Zakhele Futhi share-based payment expense, the writing off of a large portion of their South Sudan business (as a result of civil war). The fine itself had a 500 cent impact on HEPS. There was another 329 cents in forex loses. There were several other "issues" which lead to a 77 cent loss in basic headline earnings per share. Notwithstanding the accounting (and other real) losses, the group managed to declare a 450 cent dividend, bringing the total dividend to the year at 7 Rand. After tax of 20 percent (now), that equates to a four and a half percent yield. After tax. Vodacom, on the same basis have a historic yield of 4.3 percent post tax. Telkom is less than half of that. That is the simple reason the stock surged, IMO.

Another simple question, is the thesis still intact? Forget the oil price and regulatory issues, past, present or even future. The company has spent, and will spend a total of 100 billion Rand in infrastructure development over the last two and present financial year. Roughly one-third here in South Africa. Telkom has a market cap of 35 billion Rand, MTN will invest that in around three years in South Africa. Nigeria. That was supposed to be a country with great commodity wealth with a young and dynamic population. That part still exists.

In fact, I saw the Dangote Cement results the other day, the company operates in ten countries across the continent, including Nigeria as their home base. Dangote Cement reported cement volumes in Nigeria that were 11.1 percent higher than the prior year, raising their market share at the same time. Sales in the second half of the year were weaker than the year prior. The annual results also suggest that the countries economy contracted by 1.7 percent, according to the world bank.

Why is this at all important? If cement sales are a pointer to fixed capital formation increasing markedly, that indicates that at least the consumer is feeling a whole lot better than government finances, which are reliant on oil revenues, one should view this as a positive for all businesses operating in this territory. It is no secret that the current political dispensation in Nigeria, which was elected on a ticket of fighting corruption and growing the economy may have disappointed. Equally, in another of their territories that is key to growth, Iran, the weak relationship with the US is more than a little unsettling. There, in Iran, the economy has recovered smartly, as a result of capturing the higher oil prices.

MTN will be key in the data revolution across the continent, being able to deliver content to hungry customers with hungrier handsets. Music, movies, gaming and other sorts of entertainment, as we have seen in China and other countries and territories that have emerged from "developing" status, take on higher consumption. A phone and data is a form of freedom. Freedoms for watching, listening and learning. Whilst the numbers have been disappointing, the new management team inherit a structurally wobbly house in a good location. We continue to hold, we like the recent momentum with the existing business and continue to hold, the next year is certainly going to be one of rebuilding and continued infrastructure spend.