Multichoice Listing

Multichoice is about to be spun off from Naspers and separately listed on the JSE with the share code MCG. That's a good share code. Shares will commence trading on Wednesday, 27 February 2019. There is no set pre-listing price, it will have to find its own level in the market.

Multichoice is the leading video entertainment operator in Africa, with over 13.5 million household subscribers (at the end of March 2018) in 50 countries across multiple platforms, including digital satellite, digital terrestrial and online. Of those users, 6.9 million were DStv subscribers in South Africa and 6.6 million subscribers were elsewhere in Africa. The group has over 9 000 employees and has empowered many shareholders through the Phuthuma Nathi BEE schemes.

So, what should you do with the Multichoice shares that you are about to receive? There is a view out there that subscribers are abandoning DStv in large numbers for services like Netflix. These braai-side experts suggest that the business is in decline, and will end up as an ailing cash cow. This is not true. From March to September 2018 the number of DStv subscribers rose to 7.2 million in South Africa. The growth is mostly coming from the mass- and mid-market segments (DStv Access, Family and Compact).

MultiChoice has not actually lost that many subscribers at the high end either. In fact that part of the customer base has grown by a few 10s of thousands every quarter. Netflix is fabulous (and a Vestact recommended holding in New York portfolios) but most people who are able to afford it here in South Africa have a high-speed internet connection and buy it in addition to keeping their DStv subscription.

Showmax and DStv Now are streaming services available to existing subscribers, designed to stem losses and spread the benefits. In due course, dishless (streaming-only) options will be more widely sold.


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There are many reasons why people subscribe to DStv. Supersport is a world-class offering and a huge drawcard. Some customers are huge English football fans, while others are diehard Springbok or Protea supporters. Other DStv subscribers are hooked on Sunday movies on Mnet, and series like the Game of Thrones. Expats, history buffs and naturalists watch the BBC channels. Last but not least, there are those who want live coverage of the stock market!

In our view, if the economy recovers in 2019, subscriber growth will pick up and there will be scope for Multichoice to increase subscription prices.

Multichoice also has lots of growth potential in Africa outside of South Africa. There are at least 40 million addressable households across its 50 markets. Some of these operations are new and currently loss-making, but scale is everything.

There are risks to this sunny view. Young people's media consumption patterns are different to yours. They are on their phones, under their blankets, in their bedrooms, not in the TV room. Gaming is huge, and platforms like Fortnite are booming. YouTube is free, and there are literally thousands of content producers (and most of them are real nutjobs). The battle for attention is real. Media companies compete with sleep.

The group has generated revenue of close to R50 billion for the last three years in a row. Profits have been a bit variable. Core headline earnings were R3.7 billion in 2016, R0.6 billion in 2017 and R1,6 billion in 2018.

According to the pre-listing statement, the group has no plans to pay a dividend in 2019 but has budgeted R2.5 billion for distribution in 2020. Phutuma Nathi shareholders who own Multichoice South Africa (a subsidiary) will have the option to flip up their holding to Multichoice Group (MCG) shares which could create some additional variability.

We suggest that you hold the new shares and wait to see how they trade. In time we can assess their market rating and take a view on their valuation. Our best guess is that they will change hands on day one for around R100 per share, giving the whole group a starting value of R45 billion.