Like a seasoned athlete competing for gold in the decathlon, MTN remains steadfast in its strategy to do business in Nigeria, despite facing a number of hurdles in the country over the years.
"Nigeria is a core market of MTN Group. It's the most populated African country, with good demographics, has decent revenue growth and ebitda [earnings before interest, tax, depreciation and amortisation] margins are higher than SA," MTN Group CEO Rob Shuter said this week.
Unlike other JSE-listed companies, MTN is one of the few South African businesses to have succeeded in operating outside its home country. Retail giant Woolworths has found itself in a quagmire in Australia — having invested there after failing to conquer the much sought-after Nigerian market.
With 233-million subscribers in 21 markets globally, MTN operates in a number of conflict areas including Yemen, Syria and Afghanistan — markets that many investors have found unfavourable. Shuter said that as long as capital expenditure does not exceed revenues in these markets, MTN will hold its positions.
Of these markets, Nigeria has caused the most headaches for Africa's largest mobile operator. In recent years legal battles have raged with that country's government over an alleged $2bn tax infringement. In December the company resolved an $8bn (R116bn) fine related to repatriated dividends. In a seperate matter MTN negotiated down a $5bn fine related to unregistered SIM cards.
"I think it's safe to say that MTN has had a bumpy ride over the last few years," said Shuter. "Nigeria is the place in which everyone wants to be invested but there are always concerns about the conditions in which an entity would operate."
Ruhan du Plessis, an analyst at Avior Capital, said the share price is under pressure because the investor community has a great dislike of Nigeria and thinks there is a very high risk of more fines in future. MTN's share price has fallen 30% in the past two years. Vodacom's dropped 22.6% and Telkom's has risen 2.5%.
Listing the business could reduce that risk. MTN plans to list on the Nigerian Stock Exchange in the first half of this year. The group owns 78% of the operation, with 22% in local hands. Plans are to increase the Nigerian shareholding to 35% over time.
Accounting for about 35% of the group's ebidta, the naira's ups and downs directly affect MTN Nigeria's ability to settle foreign debt and repatriate dividends at the same time, which has an impact on return on investment.
Du Plessis said the listing of MTN Nigeria would likely shift investor sentiment about MTN, but it would take time.
MTN's size and geographical spread are seen as a positive. Paul Theron, Vestact CEO, said this size is a good thing. "An established customer base is a very valuable asset. Many of these markets are underdeveloped, so there's scope for upselling customers over time to better contracts and handsets."
Du Plessis said: "If you're not the No 1 or 2 player in terms of market share, you're going to struggle. We see that locally with Cell C and Telkom." He said with more customers, operators are able to absorb the cost of infrastructure more easily and the margins are better. MTN has good businesses in Uganda, Cameroon and Ghana, but the numbers in those countries don't compare to SA or Nigeria. The company does not plan to expand at the moment and has exited Cyprus, and is selling its stake in Botswana-based Mascom for $300m. But it is thought to be eyeing entry to another populous country — Ethiopia.
There are other opportunities for growth.
As operators upgrade their networks and get customers to use 3G and 4G, they can offer more services and increase their margins, said Du Plessis, citing AT&T's recent buyout of media giant Time-Warner to stream video content. MTN this week launched its music streaming service Music Time, premised on a person's ability to buy streaming time on the network as opposed to subscriptions.
And with financial inclusion being low, particularly in Africa, MTN is staking its future revenue growth strategy on mobile payments, said Ralph Mupita, MTN Group CFO.
Analysts think SA's financial services sector has advanced to the stage where mobile payments may not be viable. Mupita said banking is expensive and traditional banks don't have the appetite to build branches in less-developed or rural areas. The only way to give people in these markets financial services is through mobile devices. MTN intends to offer these to its users in Nigeria.
"We've been in that market since the early 2000s and we will be there for many, many years to come," said Shuter.
gavazam@sundaytimes.co.za..