KAMPALA – According to the MTN Uganda offer announced on Monday morning, at just 200, Ugandans can own a part of MTN Uganda. While unveiling the public shares, the company CEO Wim Vanhellepute said the MTN IPO was officially open and the offer was open for the next six weeks during which anyone interested can apply for their share of the company.
This has prompted PML Daily to find out details of the development
a) It’s not a growth offering. The company is not raising money to grow its business rather to pay its shareholders. As an entrepreneur, I don’t generally like these kinds of deals where I am a replacement for someone who has already made their money.
Response: MTN has a growth plan. At the ITF session last week, the company committed to invest over 1 trillion shillings in Uganda specifically in expanding the network. This is also part of the Company’s license obligation. Therefore, while a Shareholder is being paid for 20% of his/her stake, the same shareholder retains 76% of the company as the majority shareholder. Therefore, instead of a growth offering the Shareholder seeks shared value in the others. Please note that this IPO is not to raise capital.
b) The earnings per share averages 16% per year over the last 5 years. With a dividend policy of not paying more than 60% of Profits after-tax, it translates into a 9.6% in profits against revenue.
Not exciting considering the trouble the company must go through to earn that revenue.
Response: This is reasonable and shows a shareholder who is not looking at simply earning dividends without thinking about the overall health of the Business. Accordingly, profits retained by the company are a buffer and are subject to being reinvested if necessary. This, in my view, shows a player seeking to build a sustainable business and not merely a briefcase business for profit only.
c) MTN routinely outsources major/critical functions like masts and infrastructure provision and maintenance. This poses a risk of cost overruns/adjustments that are not beneficial to local ownership.
Response: The company strategy determines when to outsource a function and when not to. This is always guided to minimize cost to the business. This is partly the reason for the company’s profitability to date. The ability to look outside of itself to ensure sustainable service delivery at a sustainable cost.
d) Taking Mobile Money Financial Services (Mobile Money) off the table means that they have taken the fat out of the meat. It’s interesting to see that the information about the Mobile Money business is liberally included in the prospectus but the business is not.
Response: MTN Mobile Money is 99.99% owned by MTN Uganda and is part of the valuation of MTN Uganda. 0.01 % is held by MTN Group’s Company Secretary in trust for the company. This is a very basic aspect of analysis that the expert who took the job seriously should have considered. Makes one doubt the analysis totally.
e) The Convoluted nature of MTN ownership makes me a little bit uncomfortable. Even if I am a minority shareholder I like to know the people I am doing business with. MTN Ownership structure involves 4 companies (as in one company owns the other) before you get to MTN Uganda Limited. In that case it’s hard to know who calls the real shorts. This has tremendous implications in business because without knowing who they are, they become hard to influence.
Response: The Final company in the “convulsion”, MTN Group SA, is a publicly listed company on the JSE. As a public Company if there is need to find any person who makes the calls at the company this can be done. MTN Group adopts to the King IV principles of governance. These principles are cascaded down to the subsidiaries.
f) Revenue growth over the last 5 years for Data and Voice has been slow and it’s likely to decline especially for Voice. Value extraction from revenue is also low for a technology-led company. It expects Revenue of UGX 2.065 Trillion in 2021 but only 325 Billion in Net Profit after Tax. This is 15.7% of Revenue and only 9.4% may be declared as dividend.
Response: Whereas Data and Voice revenue are projected to decline the growth of Mobile Financial services would mitigate any reductions due to data and voice. Mobile Money revenues are projected to keep growing.
g) The proceeds from the sale of UGX 895 Billion (if all shares are subscribed) will go to the selling shareholders and not to pay down debt or expand the business. Yet the company is sitting on some serious debt of about UGX 612 Billion. In this regard MTN Uganda is a highly leveraged operation and one that has serious ongoing interest payments to make. It’s interesting to note that the Lion share of the debt is either originated or Consortium-led by South African Banks operating in Uganda.
Response: The same shareholder retains 76% of the company, therefore shoulders the burden of the debt in the long run. However, the company already has in place a strategy for Debt management. Listing of already issued shares was not part of the strategy. The listing is an obligation and MTN is complying accordingly.
h) In the prospectus MTN says it cannot guarantee a dividend payout every year and states in the prospectus, a risk of a capital call (asking you to invest more money) in the future.
Response: There is no Company that guarantees a dividend payout. All make projections and work towards them. Therefore, MTN cannot make such a claim. However, history has shown that over the years it has been profitable and projections over coming years show profitability.
Finally: The MTN IPO is doubling the value at the USE. The combined value of the companies’ stocks on the USE currently is equal to the value MTN is bringing to the USE. If this is the value that is coming the USE, MTN must have done and must be doing something right generate the interest of the Government of Uganda which made the listing an obligation, Ugandans, East Africans and foreigners to buy in. However, like any investment, profit or loss may occur, therefore, make your investment not thinking about quick profits but with the willingness to be part of the building of the most sustainable, profitable and Africa’s number 1 company.
