Investors hold out for MTN's recovery plan

A market darling for the bulk of its listed stay on the JSE, the MTN group has regressed to an underperforming industrial and telecoms counter over the last year, as non-compliance and the impact of operating in high risk jurisdictions weighs on the group which is set to release 2015 financial year (FY) results on 3 March.

For the first time in at least five years the group will not report growth in its full-year headline earnings per share (HEPS) figure.

The company has guided that it expects a fall of at least 20% in HEPS, largely due to factors affecting the group’s Nigerian operations.

The HEPS figure should at best be realised at 1 229c, while a worse figure is likely to see the expression of disappointment at a proportionate magnitude (as was the case upon release of the FY 2015 trading statement).

Foreign exchange losses and a higher effective tax rate would have contributed to the weaker earnings figures expected, although the most significant factors will be the large number of subscriber disconnections and withholding of regulatory services in Nigeria.

In Nigeria 5.2m subscribers with unregistered sim cards were disconnected by MTN in September last year, although this was deemed untimely in terms of a forewarned regulator deadline.

The consequence of the group’s action saw a record breaking fine of $5.2bn issued.

The fine has since been reduced to $3.9bn dollars, which MTN still contested before ultimately dropping the case and offering $250m to the Nigerian government in lieu of the fine (partial payment) and goodwill.

The remainder of the fine is yet to be determined and will not be reflective in the group’s upcoming results, although will weigh on investor sentiment for the new financial year.

Putting the fine into perspective, at $3.9bn or roughly R60bn (using $/ZAR exchange rate of R15.50), the fine amounts to just less than the first six months of the group’s revenue for 2015 (R69.3bn) or nearly double the adjusted Earnings before Interest Tax Depreciation and Amortisation (EBITDA) figure (R30.7bn) for the first half of 2015.

With the decline in earnings and looming fine payment, market participants will be most anxious to hear the fate of the group’s dividend offering and look for guidance as to how the prospective fine will be provisioned for.

*Shaun Murison is a market analyst at IG.