MTN Group: Light At The End Of The Tunnel, Or Another Oncoming Train?

For those who don't own MTN Group (OTCPK:MTNOY) shares, the experience has been like something out of a Charlie Brown cartoon. You think things are going to be different, that the company is going to push through its execution issues, only to end up flat on your back, looking at the sky, and wondering how you got fooled again and let the ball get yanked out in front of you. Although these shares actually have beaten the S&P 500 over the past year, currency moves had a lot to do with that and the shares are down pretty meaningfully over the last five years (not unusual for an emerging market stock, but still…).

So, now what? MTN Group has new leadership and a new plan, a plan that involves improving network quality, restoring some luster to the brand, and running the business on the basis of sound principles like risk-adjusted returns and ROIC. That sounds like exactly what the company should be doing, and there is significant potential to do better here, but that has to be set next to the risks. Those risks include over-spending on capex (and generating little-to-nothing from it), cutting the dividend, and regulatory and economic risk across its operating footprint.

In a bullish scenario, I could argue for a price in the $12-$13 range, but I can just as easily argue for a bearish scenario in the $8 to $9 range. Given the risk-reward trade-off, today's price seems fair - I believe investors can expect better-than-S&P 500 returns, but the real opportunity will come if and when management restores investor confidence and drives a rerating process.

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MTN Group: Light At The End Of The Tunnel, Or Another Oncoming Train?