MTN slumps as Iran troubles resurface and net debt surges

By Loni Prinsloo

(Bloomberg) – MTN Group Ltd. fell the most in six months after Africa’s biggest mobile-phone company by sales warned that the reinstatement of economic sanctions in Iran had tied up cash in its second-biggest market while debt rose by 22 percent.

Flag map of Iran

The South African company previously had high hopes for Iran and was embarking on a $750 million plan to extend fibre-to-home broadband connections to the country’s cities. But that project was put on hold after US President Donald Trump decided to reimpose an embargo on energy and financial sectors, people familiar with the matter said last month.

“We have discounted any cash flows from Iran for the next three years,” Chief Financial Officer Ralph Mupita said at a presentation in Johannesburg.

Net debt increased to R69.8 billion ($5.2 billion) as of the end of June, compared with R57.1 billion at the end of 2017, Johannesburg-based MTN said in a statement Wednesday. That was partly caused by a higher final dividend paid last year, although that will be lower in 2018 in line with a new policy outlined in March.

Nigeria highlight

The shares fell 4.6 percent as of 10:14 a.m. in Johannesburg, the most since Feb. 6, extending a decline for the year to 20 percent.

“The debt levels are high,” Peter Takaendesa, an analyst at Mergence Investment Managers, said by phone from Cape Town. “I hope they will address that with the 260 million euros ($302 million) they made from Cyprus,” he added, referring to the recent disposal of MTN’s only business in the European Union.

An employee prepares a Samsung Electronics Co. smartphone for a customer inside an MTN phone store in Cape Town. Photographer: Dean Hutton/Bloomberg

Mupita confirmed that proceeds from the Cyprus sale and an initial public offering in Ghana would be used to improve debt.

The Iranian woes and debt levels took the shine off an 17 percent growth in earnings before interest, taxes, depreciation and amortisation for the six months through June. That was driven by Nigeria, the carrier’s biggest market, and Ghana, where MTN sold shares in its local unit earlier this year, Chief Executive Officer Rob Shuter said.

“We are still seeing strong growth in voice, especially in Nigeria – we might have written off voice too early,” the CEO said by phone.

War-torn markets

MTN is reviewing its portfolio of 22 countries across the Middle East and Africa even after selling the Cyprus business. The examination is ongoing, with conflict markets including Syria and South Sudan under scrutiny.

“We want to be number one or two in the markets that we are operating in,” Shuter said. “We need a decent regulatory environment to operate in. All war-torn areas will always be under review.”

MTN’s subscriber numbers increased by 2.8 percent to 223.4 million as of end June, while headline earnings per share declined to R2.15 from R2.31. The Ebitda margin is expected to widen over the next few years and service revenue will increase by upper-single-digit percentage points, it said.

MTN reiterated a pledge to increase dividends by as much as 20 percent a year over the medium term. The full-year payout to shareholders will be R5 a share in 2018, compared with R7 last year, the company said.