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Share to watch: MultiChoice will gain from virus-imposed isolation

Amelia Morgenrood. Photo: Supplied

Amelia Morgenrood. Photo: Supplied

Published Mar 23, 2020


JOHANNESBURG - Finding a share that will be Covid-19-proof is not so easy. 

We have no idea how the current situation will impact the world and the South African economy, and what the influence will be on companies. Common sense tells me that MultiChoice has a good chance of going through the crisis with fewer injuries than most other companies.

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It is traditionally considered a defensive share. In the past, many surveys have shown that people turn to the great pastime of watching television when recession strains household budgets.

Hard times cut into the purchases of tickets to movies, theatre, concerts and sporting events and make watching television very attractive. For now, people have very few options other than watching television, in this period of uncertainty, time in front of the TV will increase.

Delays to TV production and the cancellation of entertainment shows and sporting events may positively impact near term content costs for MultiChoice. Even in the harsh economic environment that has prevailed over the last few years, MultiChoice managed to grow their subscriber base and revenue, both in SA and Rest of Africa (RoA).

MultiChoice Group creates and provides video entertainment platforms. It operates through the following segments: SA, RoA, and Technology.

The SA segment offers digital satellite television and subscription video-on-demand services in SA. The RoA is still loss-making, and expectations are that the losses will narrow over the medium term.

RoA delivers direct-to-home TV (DTH), digital terrestrial television (DTT), and over-the-top services (OTT). The Technology segment includes digital platforms and application security services. According to their last set of results, they have 18.9million subscribers and a presence in 50 countries across Africa.

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However, MCG’s exposure to oil-based countries is a concern, and probably the driver of the share price drop of the past two weeks. To balance the risk, there might be upside thanks to the recent OTT and traditional TV partnerships closed. Apptopia data shows that Showmax has taken a clear leadership position in SA’s OTT market, based on active users and time spent.

This coincides with the launch of its mobile-only R49/month service. This product was also launched in partnership with Vodacom at R99, including 2GB. Each incremental 1million Showmax mobile-only customers positively impact revenues by R0.6bn/1.5percent of MultiChoice SA. While not immediately materially to the top line, the impact is likely more materially on trading profit.

AppTopia data shows that Showmax is growing exponentially since the mobile offering launch in November, quadrupling its base.

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The trends compare favourably with Netflix and DStv Now. Multichoice SA implemented only modest price increases, and this contrast positively with pricing risk faced by the domestic telecom sector.

Last week, JP Morgan re-affirmed previous research and placed a price target of R155 on MultiChoice, one year from now.

At the end of 2019 the share traded above R130, and last week Monday it went as low as R75. It quickly recovered to the current level around R94.

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Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. MultiChoice shares are held on behalf of clients.


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