It’s been a while since my last post but I am sticking to my mantra of not posting at all as apposed to posting rubbish!
MTN (MTN) is a share that I am heavily invested in and I’ve written about it a few times on this blog so when I receive an interesting report about it I publish it.
A group of analysts sent me this:
Operational Review
MTN Consensus
MTN’s operations are forecast to deliver 27m net ads in 2008 with group ARPU of US$16. Nigeria is 41% of group EBITDA, South Africa is 24%. Relative to the primary peer group, only Vimpelcom (Russian operator)can rival MTN’s return profile relative to its valuation metrics.
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EMEA operators report ARPM declines by 10% annually while capex per minute remains unchanged, depressing returns. To date, South African operators have bucked the trend. We expect competitive/regulatory pressure to lead to higher sustainable capex and lower returns, limiting upside.
Catalyst:
MTN has a very well understood growth profile with high ARPU investments coupled with a low share price due to market gyrations offering an opportunity. The upside has been somewhat limited by our new capex forecast methodology which trims R33bn or R18 per share off MTN’s value, relative to the old method of per subscriber or per MoU.
Valuation
We value MTN at R128 on a DCF- based SoTP valuation. South Africa is 23% of the valuation, while Nigeria is 47%. A local relative multiples approach is supportive, while MTN is fair value relative to its EMEA peer group. A risk-adjusted valuation delivers fair value of R91 under extreme conditions. This limited downside offers further support for the stock.
Risk:
MTN has a historical relationship with EMBI spreads where price action is competitive pressure from well-capitalised operators our secondary concern.
The target price for MTN according to Standard Bank is R150.
