MTN Group’s shares plunged more than 12% yesterday as its management team downgraded its margin guidance on its South African business.
The group’s chief executive, Ralph Mupita, warned that if South Africa did not act to solve its problems it would become a failed nation.
MTN shares hit an intraday low of R123.53 on the JSE despite the diversified telcoms group reporting strong annuals for the year ended December 31, 2022, and also in spite of the group saying it planned to spend R9 billion on its South African network.
MTN revised its targeted core profit margin guidance for South Africa down to 37% from 39%, from 39% to 42% previously, due to higher-than-expected power costs, increased hubs and switches costs as a result of load shedding, higher network security and resilience costs, as well as a reassessment management fee agreement with the group.
Power outage costs were R695 million, or 3.4%, of MTN South Africa's earnings before interest, taxes, depreciation, and amortisation (Ebitda).
Mupita said: "In South Africa, operating conditions were significantly impacted by the national grid power availability that worsened in the second half of the year."
MTN had been investing in new equipment to deal with power outages, including batteries, and was now shifting to using more of its power.
"In our view, government and business must jointly seize the moment and act decisively to deal with this crisis," he said, adding that South Africa faced several crises – energy, logistics, crime and corruption, and youth unemployment.
Mupita said if the country did not act, it would become a failed nation.
Despite its gloomy South African outlook, MTN increased its 2022 dividend. Its final dividend rose by 30c, a 10% increase, to 330c per share.
Basic earnings per share increased by 40.4% to 1 071 cents per share, while headline earnings per share were up by 16.9% to 1 154 cents per share.
Group revenue rose 15% in constant-currency terms to R196.5 billion, with data revenue up by 33.2% to R73.7bn, while fintech revenue climbed 14.4% to R17.3bn. Its prepaid customers increased by 2.3% to 28.3 million.
Subscribers increased by 6.1% year-on-year to 289.1 million. Profit after tax increased by 42.8% to R24.26bn.
Looking ahead, MTN said it was focused on executing its Ambition 2025 strategy and maintained its guidance for performance over the next three to five years, despite elevated macroeconomic risks in South Africa and Nigeria.
Across its markets, in 2023 MTN planned to invest more than R37bn in networks and platforms, including R9bn on the South African network.
Anchor Capital fund manager Mike Gresty, said: “Given maintained guidance, the very negative market reaction to these results is hard to understand, notwithstanding, that it has been a negative day for equities generally in South Africa.”
He said what was important to consider was that if, as seemed likely, the high incidence of load shedding was the "new normal", annualising this impact in 2023 meant this was likely to be a more material headwind than it was last year.
"Unfortunately, when one combines the impact of lost revenue when networks go down with the cost of power back-up and increased theft and vandalism during load shedding on a highly dispersed network that is difficult to secure 24/7, it is becoming apparent that the sector is one of the sectors that is proving more vulnerable to Eskom’s frailties,“ he said.
Gresty said South Africa accounted for only about 22% of MTN’s Ebitda, so it was insulated by its geographic spread.
"It is for this reason that it has been confident enough to maintain unchanged medium-term guidance, despite the downgrade to South Africa – clearly enough upside potential elsewhere to offset this.
"Also, we have seen both MTN and Vodacom announce price increases recently, so it is clear they will not be absorbing this impact completely – it is going to impact the consumer too,“ he said.
Mergence Investment Managers’ head of equities, Peter Takaendesa, said: “Unfortunately, the load shedding issue is affecting many companies that derive the majority of their earnings from the South African economy, and will likely take some time to resolve – even in the unlikely event that the government finds a way to reduce the severity of load shedding – as companies have had to duplicate energy infrastructure with costly solutions.”
Takaendesa said MTN was now in a stronger position to navigate these mid-term challenges, given a de-risked balance sheet and stronger contribution to fast-growing revenue streams in mobile data and mobile money.