Friday, 16 February 2018

Equity investors gear up for MTN Ghana share offer

 Image result for MTN Ghana

Toma Imirhe & Adnan Adams Mohammed

Institutional and retail equity investors alike are gearing up for what is already being touted as possibly the most attractive investment opportunity that will become available to the public in 2018. 

The country’s biggest mobile telecommunications company, MTN Ghana will offer 35% of its issued shares for sale through an Initial Public Offering (IPO) on the Ghana Stock Exchange before end of 2018, the GSE has confirmed.

This means a sale of about GHc2.25 billion in ordinary shares, in one of the largest IPOs on the GSE do date. While this would only add about 3.5% to the GSE’s market capitalization of GHc64.9 billion currently, this is because most of that capitalization derives from the listed shares of Tullow Oil and Anglo Gold Ashanti, which however are not traded on the Ghanaian stock market. Instructively, MTN Ghana’s impending issue will add over 20% to the GHc10.88 billion current domestic capitalization of the GSE which is made up by the shares that are traded locally.

The impending stockmarket listing is ijn fulfillment of one of the conditions set by the National Communication Authority (NCA) in 2015 for awarding MTN a 4G spectrum.for the provision of internet access services at a license acquisition cost of US$67.5 million..

As part of the requirement for awarding the 4G spectrum to the company stated that, it must list on the Ghana Stock Exchange as a way of enabling local participation  in the company’s shareholding. Currently it is owned entirely by South Africa’s Mobile Telecommunications Network Group which is listed on the Johannesburg Stock Exchange.

The original timeline agreed between MTN and the NCA for the GSE listing was it to happen before the end of 2017.

If the listing on the stock exchange is successful, MTN Ghana would be exempted from the capital market local content policy which enjoins companies operating in specific areas including telecom, mining, oil and gas to list a minimum percentage of their shares on the Ghana Stock Exchange within 5 years of commencement of operations in Ghana.

Within a week of the confirmation that the IPO will take place this year – the prospectus has been completed and is now being considered by the Securities & Exchange Commission, the NCA and the GSE itself – institutional investors such as pension funds, private equity funds, collective investment schemes (mutual funds and unit trust schemes) and asset/fund managers have already started studying their respective investment portfolios to find ways to accommodate some of the impending MTN shares. Since the prospectus has not yet been approved, details on the offer price, initial earnings per share ratio and projected dividends yields are not yet available, potential investors cannot make firm investment decisions yet. However there is a nearly unanimous consensus among the portfolio investment decision that MTN Ghana will be a good buy.     

According to MTN’s financial statement for 2016 its revenue increased from GHC2.3 billion in 2015 to GHC2.7 billion in 2016 an increase of 18.7%. This translates into daily revenue of GHc7.5 million.
 But most instructively, the company’s earnings before interest charges, taxes depreciation and amortization amounted to some GHc1.297 billion, up 30.1% on the GHc911 million earned in 2015. Even after deducting GHc248 million in depreciation and amortization charges the company was still left with some GHc1.05 billion in earnings. Importantly the company is run in such a manner that its free cash and cash equivalent assets more or less matches its interest bearing liabilities, leaving it with insignificant net debt and consequently insignificant net interest expenses.

But perhaps the most important consideration for potential investors is that in 2016, its profit margin on earnings before interest, tax, depreciation and amortization was 40.7%..

The telecom operator’s data revenue went up to 65.7%, contributing 42% to total revenue while digital revenue contributed 48% to data revenue.
However investors will still have to wait for several more months before this eagerly anticipated opportunity matures – MTN expects to commence the issue about three months after all its regulatory approvals have been obtained, which itself may occur during the second quarter of the year.

The listing of the mobile giant is expected to improve the GSE Composite Index. The GSE-CI is a major stock market index which tracks the performance of all companies traded on the Ghana Stock Exchange.

The Ghana Stock Exchange (GSE) continues to show impressive performance recording 26.44% growth in its overall Composite Index for 2017. This bullish run is expected to continue unabated.

Recording a market capitalization of GH¢64.9billion as at February 12 this year, the performance has been seen rated so far this year by Bloomberg as the best in Africa, performing better than the Nigerian and South African stock markets.

Significant gain on the GSE Composite Index comes at the back of much higher trading activity recorded in 2017 by both Equity and Fixed Income markets.

Combined with the strong growth of MTN Ghana itself, this provides the prospect of strong capital gains for investors in the company derived from significant share price appreciation going forward a proposition that is fuelling investor enthusiasm for the impending share issue.

Interestingly, MTN Nigeria is expected to be listed on the Nigerian Stock Exchange during the second half of 2018 as well. The impending listing is one of the conditions behind the resolution of the US$5 billion fine imposed on the company in 2015 for regulatory infractions. The fine was later reduced by more than half subject to the fulfillment of certain conditions including the upcoming public share offer. MTN Nigeria accounts for about one third of the MTN Group’s total revenues.