Johannesburg - Telecommunications group MTN's annual results for the year ended December 2009 revealed a company that had made the best of a bad market.
Analysts are positive about the future of the company, but raise concerns about potential challenges in its primary markets of SA and Nigeria.
Vestact's Paul Theron said that expanding markets would continue to favour MTN, which reported growth of a 28% growth in subscribers across the group in 2009.
"The results are fine, in line with estimates, which had been guided down on adverse currency effects," said Theron.
Commenting on the currency fluctuations that had impacted negatively on MTN's results, he said, "The naira collapse was a structural one, and there has not been a bounce back, even though global capital markets and crude oil prices have since recovered."
MTN declared a dividend of 192c per share, indicating that it expected spending on capital expenditure (capex) in the 2010 financial year to be far less than what it was in 2009.
"The reduced capex budget makes for a very promising free cash flow outlook," continued Theron.
"Coupled with the more forthcoming dividend policy, this will please the more conventional institutional investors - not the technology growth junkie investors like ourselves," he said.
Theron said that growth in smartphone use and diversified devices being connected to cellular networks would bolster average revenue per user (ARPU) rates. MTN reported that it was experiencing lower ARPU's in the post-paid (or contract) portion of its subscriber-base.
Kaplan Equity Analysts' Irnest Kaplan said that the group's operational performance was good outside of South Africa, especially if considered in local currencies.
"The reported results might not look that good thanks to forex, but on the ground things are going well for MTN in most of the markets it operates in," he said.
"Considering that 2009 was arguably the worst year of the last decade economically, I don't think these are bad results," he added.
Kaplan said that issues like the lowering of mobile interconnect rates and the impact of South Africa's regulation of interception of communications act (Rica) and similar legislation in other countries had to be considered on a country-by-country basis.
He added that interconnection was not well understood in the market and did not necessarily relate to a lowering in tariffs, despite regulators' efforts to drive down prices.
Kaplan said that the full effect of the lowering of interconnect rates had not yet been fully felt, but was on the horizon.
"They will feel pain, but it will take longer than some may think," he said.
ICT analyst for Frost & Sullivan, Spiwe Chireka, said that MTN's results were better than what she had expected.
She added, however, that the impact of Rica and interconnect would be felt in 2010, both in South Africa and Nigeria, which are MTN's biggest markets.
20m more subscribers
Nigeria is scheduled to implement a similar system to Rica in May 2010.
Dobek Pater, an analyst at Africa Analysis, said that the high Ebitda margins enjoyed in African markets in the last decade were a thing of the past and that companies like MTN had to find new ways of generating revenue.
He added that competition in the SA market placed pressure on MTN, which has lost some ground to competitors.
CEO Phutuma Nhleko admitted on Thursday that the company could not maintain past growth levels in SA, but added that this was due to maturity in the market.
He said that MTN expected to add 800 000 South African subscribers in 2010, and 20 million across the group, which currently has 116 million subscribers.
The company showed strong growth in its subscriber base in other markets, however, with the highlight being Iran, where MTN's subscriber base has grown by 45%.
Nhleko said that MTN had proven that it could handle competition in Ghana where it faces five other operators and has managed to control the lion's share of the market.
- Fin24.com