Shares of pan-African mobile services provider MTN Group (OTCPK:MTNOY) are down less than 10% from the last time I wrote about the company. And yet, since that time, the company has reached a settlement with the government of Nigeria on a large fine, appointed a new CEO, and begun to make some significant changes to its long-term strategic plans. It's also worth noting that the iShares MSCI South Africa Index (NYSEARCA:EZA) is up more than 15% over the same time period, so MTN Group is definitely getting left behind.
reasons are many and ought to trouble MTN Group's shareholders.
Nigeria's economy remains a mess, the company's competitiveness in South
Africa is still less than ideal, the company still has a significant
leadership vacuum, and there are new allegations of serious financial
malfeasance in Nigeria.
I've significantly cut back my
expectations for MTN Group from a modeling perspective, as I believe the
company will have to spend more on capex to drive growth, and I have
also chosen to model MTN Nigeria separately (and with a significantly
larger discount rate). After these changes, my fair value of around
$10.50/ADR still leaves meaningful upside for a company leveraged to
significant potential growth in subs and ARPU over the next
decade and beyond, but "potential" is a dangerous word in investing and
investors should approach MTN Group aware of the risks and challenges.
MTN Group Bouncing From Problem To Problem