Johannesburg - MTN [JSE:MTN] was once South Africa's favourite cellphone stock, but the group has been buffeted in recent weeks as regulatory changes made investors skittish. However, investment experts say there's value left in the stock.
MTN dropped more than 15% in early April after regulatory body the Independent Communications Authority of South Africa (Icasa) said that mobile interconnect rates must be reduced to R0.65 per call by July 2010.
Stockbroker Barnard Jacobs Mellet [JSE:BJM] advised clients on Friday : "MTN’s appeal lies in its dominance in growth markets and we are happy to retain exposure in our core equity portfolio.
"At current levels the FPE [forward price:earnings ratio] is some 11x which is not regarded as demanding and we would accumulate for underweight positions".
Commenting on the subscriber update from MTN on Thursday, BJM said that Nigerian subscriber growth of 29% had exceeded their forecasts.
Yet providing further food for thought about the business, MTN said Arpu, or average revenue per user, was below forecast. Total forecast Arpu growth remains unchanged at 8%.
On the corporate front, MTN wants to bounce back quickly from its failed attempt to merge with India's Bharti, confirming it was in negotiations to buy Egypt's Orascom Telecom. This involves a $9bn deal that would include Algeria's top mobile phone firm business.
However, political tension between Algeria and Egypt</a> looks like it may stall this transaction.
This does not discourage Sasha Naryshkine of asset management firm Vestact: "Globally MTN is in the top 11 or 12 mobile companies, and it has 123 million subscribers. It keeps really good company."
Investors should not be discouraged by the fact that MTN has grown subscriber numbers by 7% quarter-on-quarter because this translates into 25% increases annually, he says.
MTN's ability to grow revenue per user in a difficult economic climate had also been understated, said Naryshkine,
Arpu increased to R155 from R139/user while pre-paid revenue had risen from R92 to R108/user - improvements achieved despite telecommunications costs declining in 2009, indicating that people were talking longer or consuming more data.
Increased data usage was also expected to boost MTN in the long term.
Naryshkine said that there are about 140 million smartphones on the market at the moment. This is expected to grow to about 500 million by 2013. "People aren't just going to use a smartphone because they like a touch screen," said Naryshkine.
Derivative trading firm Global Trader issued a note to clients last week, in which it said MTN might have been oversold in the wake of the Orascom announcement.
"The initial decline in share price has now stabilised, leaving the share at a level where we feel it would be good to enter into a long position," Global Trader said.
From a technical perspective, it's worth noting that Tendai Nyakabau, an analyst at Cortex Derivatives, has identified the R106.89 level as a first level of support with the next support level at R105.39.
Absa Capital gave shares in MTN a medium-term target of R127/share and a long-term target of R130.
- Fin24.com