After Nigerian fine MTN has lost its African crown – Vodacom now Number One

For MTN old-timers, it must be starting to feel like the old days. Less than two decades back, the business was on its knees. It was so far behind Vodacom that the rival engaged in fancy pricing footwork to keep its South African competitor alive. The tables were turned in 1999 when MTN gambled on the post-Soni Abacha Government in Nigeria, betting the new Obasanjo regime would follow through on its promise to support foreign investors. Such was global scepticism that MTN was one of only two bidders for the three Nigerian mobile phone licences made available by the cash-starved Administration. Vodacom itself and all of the world’s major cell phone companies rejected the opportunity as too risky. For the past decade and a half, MTN’s decision appeared inspired as Nigeria became its strongest profit source. But after being hit with a $3.9bn fine – $100 for each expired pay-as-you-go client not de-registered – the bigger players will be telling themselves they were right all along. Making long-term infrastructure investments in unstable geographies, as MTN has done, introduces Black Swan-type risks like the Nigerian Government’s sledgehammer fine. Last week at their annual New York gathering, the world’s leading hedge fund managers earmarked MTN as the most attractive “short” on earth. Today’s news that Vodacom’s market capitalisation has passed that of its rival’s, adds salt to a gaping wound. – Alec Hogg            

By John Bowker and Loni Prinsloo

(Bloomberg) — MTN Group Ltd.’s six-month battle with Nigerian authorities over payment of a record fine has cost the company its seven-year status as Africa’s highest valued telecommunications operator to rival Vodacom Group Ltd.

MTN’s market capitalization was 244 billion rand ($16.2 billion) at the market close in Johannesburg on Wednesday, trailing Vodacom’s 249 billion rand. This year marks the first time the rankings have been reversed since Vodacom, a unit of Newbury, England-based Vodafone Group Plc, first sold shares in an initial public offering in 2009.

Vehicles stop at a traffic junction by an MTN billboard in central business district Abuja, Nigeria November 17, 2015. REUTERS/Afolabi Sotunde
Vehicles stop at a traffic junction by an MTN billboard in central business district Abuja, Nigeria November 17, 2015. REUTERS/Afolabi Sotunde

MTN’s shares have declined 31 percent since Oct. 26, when the record $5.2 billion Nigeria fine was made public. While the penalty was later reduced to $3.9 billion, the South African company has yet to agree to a payment. Chief Executive Officer Sifiso Dabengwa resigned in November, to be replaced on a temporary basis by his predecessor, Phuthuma Nhleko. Vodacom has gained 12 percent in the same period.

“The problem is all the uncertainties hanging over MTN’s head,”  Irnest Kaplan, a telecommunications analyst at Vunani Securities, said by phone from Johannesburg. “The market needs to know who the next CEO will be, but most importantly the market needs to be updated on the fine negotiations and if there has been any progress. Markets do not like uncertainty.”

Both MTN and Vodacom are relying on growth in smartphone use in international markets amid weaker sales in South Africa, where tighter regulation and competitive pricing have hurt both companies.

MTN, which had 229 million customers in 22 countries at the end of March, had revenue of 146 billion rand and net income of about 20 billion rand in 2015. Vodacom probably generated 82 billion rand in sales in the year through March, according to the average forecast of 14 analysts surveyed by Bloomberg, and net income of 13 billion rand. Vodacom reports full-year earnings on Monday.

Vodacom briefly overtook MTN for the first time on April 5, before MTN retook the top spot on April 8. Vodacom reclaimed the lead on May 6.

“I think Vodacom could be fully valued at current prices and MTN could be viewed as cheap,”  Peter Takaendesa, a money-manager at Mergence Investment Managers in Cape Town, said by phone. “MTN’s earnings were double that of Vodacom’s earnings and I think the fine and management uncertainties are strongly playing into current evaluations.”