Reliable Execution Has Done A Lot Of Good For MTN Group

Another year has gone by and sentiment around MTN Group (OTCPK:MTNOY) is as good as it has been in quite a while. CEO Ralph Mupita has proven that he and his management team can deliver on a number of value-creating moves without dropping any balls across this pan-African telco provider’s vast business footprint (272M subs). Better still, the company’s relationships with regulators seem to be on better footing, while economies across Africa are benefiting (to varying degrees) from higher export commodity prices and waning burdens from the pandemic.

The good and bad of MTN Group as a stock is that valuation is driven so much more by sentiment around emerging markets (Africa in particular, naturally) than underlying financials. I thought the shares were exceptionally cheap a year ago, but they had been that way for some time. In the last year, though, sentiment has shifted significantly, driving the ADRs up more than 100%.

I continue to view these shares as undervalued and capable of delivering double-digit annualized returns for some time, largely on the back of strong growth in higher-value data and fintech services. This is a harder stock to recommend to casual investors, though, as there are a lot of moving pieces to track and sentiment on emerging markets can swing so wildly.

 

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Reliable Execution Has Done A Lot Of Good For MTN Group

MTN Group Still Offers Huge Potential - But That's Never Been The Issue

 

MTN Group (OTCPK:MTNOY) is the sort of stock that will make you seriously question whether stockpicking is worth the time and energy. This company should have so much going for it, including a leading mobile service footprint across much of Africa and a fast-growing mobile money business, but results over the years have never lived up to the potential.

Some of the challenges are outside of the company’s control, including government ineptitude and corruption, macroeconomic challenges, and shocks like the COVID-19 pandemic. Other issues, like a weak competitive position in South Africa, should be more within management’s power to control but nevertheless linger on.

I remain bullish on MTN Group’s leverage to data traffic growth and mobile money growth, as well as its leverage to overall population and economic growth in Africa. That bullishness has to be tempered, though, by certain realities – there’s work to do in South Africa, the company has had contentious relationships with several governments, and Africa as a whole is a continent that investors have been waiting to see blossom for close to 50 years now.

MTN shares look undervalued even with exceptionally high discount rates and what should be reasonable, if not conservative, growth assumptions. Management is also pursuing some very sound operational strategies. Whether the macro and political environments will cooperate is a separate issue, though, as is the question of whether sentiment will meaningfully improve.

 

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MTN Group Still Offers Huge Potential - But That's Never Been The Issue

MTN Group Still Facing Profitability With No Prosperity

I've been doing this for over a quarter-century now, and MTN Group (OTCPK:MTNOY) may well be the most frustrating stock I've owned and followed over that time. While there have certainly been management missteps in this company's history, even a good management team with a good plan hasn't been much of an elixir for the ailing stock price, as constant regulatory nonsense across its operating area, as well as other macro challenges, has mitigated any of the benefits.

These shares may now be the cheapest they've ever been, but it's hard for me not to conclude with a "… so what?", particularly with some significant upcoming license renewals and ongoing economic and political challenges in South Africa. Maybe I'm getting ready to throw in the towel at the low point, but it's honestly difficult to recommend these shares even despite significant apparent undervaluation - a good management team and a good valuation are often highly valued, but the significant ongoing external issues are an inescapable and unignorable negative part of this story.

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MTN Group Still Facing Profitability With No Prosperity

MTN Group Making Operational Progress, But Macro Challenges Loom Large

MTN Group (OTCPK:MTNOY) shares have certainly recovered from the panicked levels of September 2018 as investors have had a chance to digest the real likelihood of the company having to make significant payments (again) to Nigeria’s government, as well to observe the real progress that the management team has been making with the business.

With the shares up more than 50% from my last article, sentiment has improved, but there are still serious ongoing uncertainties about the business in Nigeria, as well as the possible impact of sanctions (or worse) against Iran. On the other hand, management has been delivering on goals like increased data usage, expanded fintech usage, and monetization of non-core assets. MTN Group shares continue to trade at a discount to their fair value, but investors need to be aware of the above-average macro risks that seemingly always accompany the story.

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MTN Group Making Operational Progress, But Macro Challenges Loom Large

Nigeria Once Again Turning The Screws On MTN Group

It wasn’t as if South Africa-based, pan-Africa mobile services provider MTN Group (OTCPK:MTNOY) didn’t already have enough challenges, what with the company fighting for market share and margins with Vodacom (OTCPK:VDMCY) in a weak South African economy, facing renewed sanctions on Iran, and having some challenges in other operating areas. Now the situation has gotten considerably uglier with the government of Nigeria looking to take $10 billion from MTN for what it claims are underpayment of taxes and violations of currency controls.

At this point it is harder and harder to argue for patience with MTN Group. While new management may be able to drive better long-term performance, and the long-term potential of the African market (as a whole) is significant, the issues with Nigeria and Iran are significant and won’t go away quickly. MTN Group is likely trading below, if not well below, a reasonable estimate of fair value, but the risks to the Nigeria business are substantial and that creates significant overall uncertainty as to valuation and long-term potential.

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Nigeria Once Again Turning The Screws On MTN Group

MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Between foreign currency weakness, resumed sanctions on Iran, local economic concerns, and competitive pressures, MTN Group (OTCPK:MTNOY) isn’t getting much credit for the progress it has made. New management hasn’t been in place long, but the renewed focus on cost-effective service quality and responsible portfolio management looks like the right strategy to drive long-term value.

Although MTN Group shares do look meaningfully undervalued, the troubles in Turkey show how quickly and how dramatically adverse currency moves can decimate the value of a holding. While that’s an apples-to-oranges comparison for MTN Group, South Africa isn’t exactly in superior shape and the risk of ongoing economic and currency challenges in major markets like South Africa and Nigeria is likely to keep a lid on sentiment until MTN Group logs multiple better-than-expected quarters.

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MTN Group Making Progress, But Not Fast Enough To Shift Sentiment

Signs Of Progress (And Value) As MTN Group's Turnaround Progresses

Many emerging market telcos have done alright over the past year, though MTN Group's (OTCPK:MTNOY) performance in local currency terms has remained lackluster as management works to set right the many mistakes of past management. The ADRs have performed better, though, and there is still some worthwhile upside here as the company looks to reinvest in its network to drive customer satisfaction and, eventually, revenue and earnings growth.

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Signs Of Progress (And Value) As MTN Group's Turnaround Progresses

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?

A Marked Improvement At Turkcell Restores Some Confidence

Shareholders of Turkcell's (NYSE:TKC) ADRs might understandably feel as though they've been cursed. Even when the company is executing very well on its strategy and seeing an exceptional improvement in results, the adverse move in the Turkish lira chews up most of the benefit. Since my last piece on Turkcell around a year ago, revenue expectations for FY 2017 have risen around 13%, and the local shares are up better 20% … and the ADRs are up less than 10%. Strong dividend payments this year sweeten the pot a bit, but Turkcell remains the sort of stock where you feel like you have to cover your eyes and peek between your fingers whenever there's news.

While I'm admittedly being a little flippant about this situation, I do believe Turkcell's strong execution over the past year deserves respect. Likewise, I think the recent trend in performance lends a great deal more credibility to management's long-term strategic view of the company. There is still a lingering shareholder dispute to resolve and ample uncertainty about Turkcell's M&A plays (not to mention plenty of uncertainty about Turkey itself), but the shares look around 20% undervalued today, and that's enough to keep me interested.

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A Marked Improvement At Turkcell Restores Some Confidence

MTN Group Bouncing From Problem To Problem

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.

The 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.

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MTN Group Bouncing From Problem To Problem

Seeking Alpha: MTN Group Desperately Needs To Get Its Act Together

Emerging market stocks have had a bad year in general, with most of the diversified indexes showing double-digit losses. South Africa's MTN Group (OTCPK:MTNOY) has done substantially worse, falling more than 50% this year and doubling the poor performance of the iShares MSCI South Africa Index (NYSEARCA:EZA), as the company has faced competitive challenges in many African markets, ongoing executive turmoil, and a huge regulatory fine in Nigeria.

That the shares seem significantly undervalued and represent a diversified play on the growth of Africa is really the only reason to continue to put up with the drama and volatility. MTN Group does do some things right, and the company is seeing strong performance from mobile data and mobile money, but the company desperately needs to name a strong candidate as CEO and craft a plan that will see the company compete profitably in its markets.

I believe that mid single-digit long-term revenue growth and high single-digit FCF growth can support a fair value close to $14 for the ADRs. That represents a substantial erosion of value over past articles on this company, but the movement of the rand against the dollar (from around 10.50 to 15.20) has done a lot of the damage. Cooperatively resolving the fine in Nigeria, leveraging growth potential in Nigeria, Iran, and Ghana, and competing intelligently in South Africa would all help drive value apart from macroeconomic factors like currency rates.

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MTN Group Desperately Needs To Get Its Act Together

Seeking Alpha: Currency And Competition Grinding On MTN Group

MTN Group (OTCPK:MTNOY) continues to be an underperforming stock for investors looking for exposure to Africa outside of mining or other natural resources. That the local shares are up a bit since my last update is no comfort at all to ADR holders, as ongoing depreciation of the South African rand has punished performance.

Operationally, I continue to like MTN Group's prospects, though I acknowledge that the company has to up its game in South Africa and faces a host of risks and uncertainties in Nigeria. While I think a long-term perspective can smooth these issues to some extent, and I continue to believe the shares are undervalued, MTN Group's need for both internal improvement and external stability puts in a category suitable only for high-risk investors.

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Currency And Competition Grinding On MTN Group

Seeking Alpha: Amidst Macro Worries, MTN Group Can Still Outperform

While a long-term bull on pan-African mobile phone services provider MTN Group (OTCPK:MTNOY), I was cool on the stock's near-term performance potential back in September. Since then, the ADRs have dropped about 25% while the local shares have fallen about 20%. That move hasn't occurred in a vacuum, with investors worried about the macro outlook in Nigeria and South Africa and company-specific concerns about MTN's performance in those large markets.

I remain bullish and I think the shares are looking more appealing on a short-term basis as well. I believe the market has over-corrected for the risks in Nigeria and underestimates the steps taken to improve results in South Africa and the long-term potential of mobile money services. Adverse currency moves have pushed my target down by about $1, but I think MTN Group remains a well-run play on growth in Africa and to a lesser extent the Middle East.

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Amidst Macro Worries, MTN Group Can Still Outperform

Seeking Alpha: MTN Group Doing Pretty Well Despite Operating Challenges

Up more than 30% over the past year and more than 10% since my last update, I can't really complain about MTN Group (OTCPK:MTNOY). Although the company still has a lot of work to do in South Africa, and maybe more work to do than is commonly appreciated in Nigeria, the company's overall trends in subscribers and margins are looking pretty good. 3G and data remain significant growth drivers, as does mobile money, but MTN Group's valuation seems to largely reflect those opportunities. I'm reluctant to sell a well-run and broad-based play on Africa that could generate double-digit long-term FCF growth, but I can't claim that today's price is a tremendous bargain for new investors.

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MTN Group Doing Pretty Well Despite Operating Challenges

Seeking Alpha: MTN Group One Of The Few Telcos With Real Growth Opportunities

I've lamented on more than one occasion that growth is getting harder and harder to find for many, if not most, global wireless service providers. Not only are most developed markets already saturated, but many so-called emerging markets have already emerged, leaving many service providers with few options other than to engage in withering price and marketing competition. That's not the case for Africa's MTN Group (OTCPK:MTNOY), as the company continues to see high single-digit sub growth overall across its 22 markets. Better still, data, mobile money, and higher end services (3G and so on) are only just starting to make real contributions to results. MTN Group doesn't offer a rock-bottom valuation, but the growth prospects are good enough to make this a name worth consideration.

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MTN Group One Of The Few Telcos With Real Growth Opportunities

Seeking Alpha: Orange SA Needs Market Repair To Fuel Another Leg

France's CAC 40 has done reasonably well this year, beating the S&P 500 and major European indexes like the FTSE, but Orange SA (ORAN) has blown the overall French market out of the water with the shares up almost 40% year to date. Shareholders have definitely embraced the company's ongoing cost reduction efforts and the company's major markets have largely settled down in terms of pricing.

Orange SA still has some opportunities to improve on its own, including 4G and fiber rollouts, but the shares valuation seems to factor a lot of that in right now. For the shares to keep up this momentum, I think the market needs to see more consolidation. With rumors out that Orange has approached Bouygues (OTCPK:BOUYY) and the French government previously indicating it was open to further consolidation, Orange may be able to push the French market toward much-needed market repair and unlock more value.

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Orange SA Needs Market Repair To Fuel Another Leg

Seeking Alpha: Millicom Needs To Improve Margins To Unlock Value

The glory days of wireless service growth appear to be over. Most markets have at least three competing companies, and even those few remaining virgin markets have been demanding expensive concessions from operators. In the case of Millicom (OTCPK:MIICF), then, the question is whether or not the company can use better margins as a driver of shareholder value. Though the company has the opportunity to grow its cable and multi-play services in Latin America and benefit from underpenetration in Africa, management will likely find it easier to deliver incremental growth through cost containment.

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Millicom Needs To Improve Margins To Unlock Value

Investopedia: MTN Group Has The Growth, But Ample Uncertainties

One of the predominant issues in telco service stocks right now is the weak growth environment – penetration rates in most developed markets are quite high, and competition makes it difficult to sustain any sort of real edge. That's not nearly as much of a problem for Africa's MTN Group (Nasdaq:MTNOY), given the low penetration rates and per-capita incomes in much of its territory, but the company has its own set of challenges ranging from regulatory, political, and economic uncertainties to the potential deployment of capital towards M&A.

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Investopedia: Does AT&T Have Global Ambitions?

Monday is often the day for deals and rumors, and a doozy in the telecom market quickly made the rounds. Depending upon which reports you believe, AT&T (NYSE:T) either made a bid for Telefonica (NYSE:TEF) and was rebuffed by the Spanish government, or no such approach was ever made. In either case, it is not altogether surprising that AT&T would be entertaining global ambitions, and Telefonica is certainly a business that could be worth quite a bit more if cleaned up and improved. By the same token, this is not the only potential asset that could appeal to AT&T.

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Investopedia: Verizon, AT&T, And Vodafone - Here We Go Again

Large companies aren't really famous for being good at sharing. With that in mind, the shared ownership of Verizon Wireless between Verizon (NYSE:VZ) and Vodafone (Nasdaq:VOD) has always seemed inherently unstable. While the companies once contemplated an IPO for the business, the decision to maintain the status quo has led to nearly annual speculations as to whether the two companies will reach agreement on some sort of M&A transaction.  

Whether it's due to real interest or just the fact that the market is in a dry patch for news prior to the next earnings cycle, these rumors have heated up once again. In an interesting twist, rumors are now including AT&T (NYSE:T) as a potential third party to facilitate a transaction that would essentially split up Vodafone between the two American carriers.

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