Follow the optimists back into MTN shares? Not just yet – more pain likely

The instinctive reaction of a contrarian investor is to be greedy when others are fearful. After a sharp drop in the MTN share price since being nailed with a $5.2bn fine in Nigeria, the stock has attracted a lot of interest. Getting the shares at prices that they were last available three years ago obviously appeals to some investors.

But something still niggles. Warren Buffett reminded us that when a problem surfaces there's "rarely just one cockroach in the kitchen." Especially in difficult businesses. And right now, MTN's primary profit market, Nigeria, is obviously a really tough place to trade.

The smart play is to wait for the Nigerian fine to be finalised one way or another. Mr Market is betting MTN will get it reduced. The full fine will cost the company R74bn, quite a bit more than the R60bn which MTN has lost in value since the fine was announced. Which means Mr Market estimates the Nigerians will reduce the fine to, at most $4.2bn. Maybe. then again, maybe not.

From Biznews community member Andrew Bishop

As usual I enjoy reading your morning notes and this morning was no different. But need to point out that MTN only owns 79% of MTN Nigeria (per their Annual Report). Therefore the fine of R75bn should represent a market cap of R59bn (79% x R74bn). Quote from Warren Buffett is still valid.