MultiChoice multiplies profits

*This content is brought to you by MultiChoice

Be careful of introducing bias into your investment decisions. You may have cancelled DSTV in favour of Netflix, but that doesn’t mean everyone has done so.

It reminds me of the Great Facebook Boycott of 2020, which was barely a pimple in Facebook’s overall performance. It’s really important to take emotions out of your investment decisions.

Although you or your friends may be streaming rather than using DSTV, it’s quite clear from MultiChoice’s latest results that not everyone has made this decision. There are 8.9m subscribers in South Africa alone. With around 20m households in South Africa (depending which research you read), this means that nearly half of South African households have a DSTV dish on the roof.

MultiChoice added 1.4m 90-day active subscribers in the year ended March 2021, finishing the year with 20.9m subscribers. That’s a subscriber growth rate of 7% per year, demonstrating that MultiChoice is still winning new customers in the mass market. The excitement in MultiChoice is in the Rest of Africa segment, which accounts for 57% of the total subscriber base.

The company also notes that an easing of electricity shortages improved growth rates. I guess when you have load shedding all night, there isn’t much point in having DSTV. People tend to seek out other forms of entertainment that have stood the test of time, which is partly why I hold shares in Match Group (which owns Tinder and other dating apps).

Revenue is up 4% to R53.4bn of which R44.7bn (84%) is subscription-based. Pure advertising revenue was down 11% to R2.8bn, contributing over 5.2% to total revenue. It’s not difficult to work out that subscriber growth is the key metric here, with advertising and other revenue as cream on top.

A reduction in losses in the Rest of Africa helped trading profit rise 28% to R10.3bn. On a constant currency basis, the increase was 44%. Part of this growth included the benefit of fewer costs related to sports events, which is a margin benefit that will (hopefully) not be repeated in FY22 as the world starts to come right.

A critical highlight in the result is that overall costs declined 1% year-on-year, which is impressive vs. the levels of inflation. There was a R1.5bn cost benefit in addition to the R1.1bn in savings from fewer sports events.

Free cash flow of R5.7bn was 10% up vs. the prior year. There aren’t many companies that have achieved that over the course of the pandemic. A record three million viewers for the lockdown edition of Big Brother Nigeria shows that every crisis can bring opportunities.

A dividend of 565 cents per share has been proposed, which is a yield of 4.25% on yesterday’s closing price.

MultiChoice has R8.5bn in cash on the balance sheet plus a further R4bn in available facilities. That’s important when cash is being generated in countries like Nigeria that have liquidity constraints. Just ask MTN.

The company issued a second announcement on the day with further details on the acquisition of a further holding in BetKing. MultiChoice originally acquired a 20% stake in October 2020 and will now increase that to 49%. This “vertically integrated sports entertainment platform”, which is a really impressive term for a sports betting business, demonstrates MultiChoice’s intent to expand beyond its current operations.

BetKing achieved revenue of $77.9m in FY20 and EBITDA of $11.3m, a reasonably attractive EBITDA margin of 14.5%.

It doesn’t take a rocket scientist to see the opportunity in owning sports betting and SuperSport in the same group.

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