MTN share price does not reflect the future prospects of the business, Phuthuma Nhleko insists

March 10, 2017.MTN Group CEO Phuthuma Nhleko at the MTN head offices in Fairland in Randburg.Picture:Freddy Mavunda © Financial Mail

Outgoing executive chairman says the share price does not reflect the future prospects of the business

On the day Phuthuma Nhleko took over as executive chairman of MTN Group in early November 2015, the share price closed at R160. Last week, on his last day in that role, MTN stock ended the day at R122.30, valuing the group at R230bn.

True, that is a marked improvement from the low of R107/share in late October last year.

But it is still quite a bitter pill to swallow for the cellphone operator’s investors, who have seen the market capitalisation of their asset plummet from the lofty heights of R496bn in September 2014.

Nhleko, however, exudes the calm confidence of a man who has delivered on the expectations of investors, despite the firm reporting its first net loss in 20 years.

“The share price doesn’t reflect the future prospects of the business,” he says, leaning back on a grey synthetic couch in his office a few hours before handing the reins to new CEO
Rob Shuter.

He wouldn’t, however, be drawn on what he deems to be the correct value for MTN, other than that it would be significantly higher.

Nhleko believes the company, with a negative p:e of -162.45, has come through the worst.

“We’ve come out of very difficult situations as a group — both in Nigeria and in SA,” he says.

Things are also looking up in Iran, MTN’s third-largest market.

Nhleko is moving back to his nonexecutive role, making way for Shuter, who joined this week after a stint as CEO of Vodafone’s European cluster.

Nhleko had come back to stabilise MTN after the sudden departure of CEO Sifiso Dabengwa, who fell on his sword and resigned after a short meeting with nonexecutive chairman Nhleko on a Monday in November 2015.

Under Dabengwa’s watch, MTN had been fined an unprecedented US$5.2bn by the Nigerian communications commission for its failure to comply with regulations to
terminate the phone lines of some 5.1m unregistered subscribers in that country. The fine was equivalent to double the group’s 2014 net profit of R32bn, and many times that of the Nigerian unit.

It was also equivalent to a quarter of the Nigerian government’s total budget.

Nhleko’s task, when he was asked to take over from Dabengwa, was to help stabilise the company by negotiating and settling the Nigeria fine, appointing a permanent CEO and then strengthening MTN’s governance structures, to avoid a repeat of the governance lapses.

He immediately got to work, flying to Abuja to negotiate the fine down, a task that took eight months. The fine was finally settled at 33% of the original amount. Nhleko says this was not ideal, but better than it could have been.

Joining Shuter are 10 other new executives who have been recruited in the past year. Their task is to help strengthen the group’s governance structures and explore new revenue opportunities.

They include COO Jens Schulte-Bockum, who was CEO of Vodafone Germany for the three years to 2015. Former BT global services executive Oliver Fortuin started this month as head of business enterprise. Ralph Mupita will start in April as CFO, joining from Old Mutual Emerging Markets, where he was CEO.

“These executives have reinforced the management team,” says Nhleko. “I believe we now have the strongest management team in telecoms in sub-Saharan Africa.”

The board has also been reinforced with additional directors who bring with them international experience.

It is all these interventions that Nhleko points to when he says the group has stabilised, and will now embark on its next growth phase.

“We need to provide local content, not just build pipes to provide a platform for Facebook,” says Nhleko. “The additional team is to reinforce the operations and to bring new thinking.”

MTN has initiated Project Ignite, through which it hopes to improve earnings before interest, tax and depreciation by about 20%.

The main challenge will be to define new revenue streams to grow faster to replace falling voice revenue, says Nhleko. “We need to increase the yield out of the existing high-value customers who can afford more data products,” he says.

The new layer of management is full of financial services experience. It includes Barclays Africa’s Stephen van Coller, who will serve as head of mergers and acquisitions.

But Nhleko does not immediately see any major acquisition opportunities, though he refers vaguely to a need for consolidation in many of MTN’s markets.

“The regulators had encouraged a lot of issuing of licences,” says Nhleko, adding that having too many operator licences has not proven to be exactly the correct strategy.

In both Nigeria and SA, any acquisition of a competitor would face high hurdles from a regulatory point of view.

Due to its 44.5% market share in that country, Nigeria deems MTN to be a dominant operator that is subject to more scrutiny and limitations than its competitors.

MTN’s status as SA’s second-largest operator will almost certainly rule it out of any possible tie-up with Cell C, which is the subject of a takeover by Blue Label Telecoms. In its 16 years of operations, Cell C has yet to turn a profit.

In SA the company is “not a disinterested player”, Nhleko says, when the name Telkom is mentioned. Telkom Mobile has not made a profit since it began its operations. While it would help to bring fibre to the home and office, thereby bringing cheaper data through fixed line services, a combination of Telkom’s fixed-line operation with MTN would not pass antitrust scrutiny due to competition concerns.

“I think we need strong enough players in the market, so the taxman can collect more tax revenue,” Nhleko says.

* Mantshantsha directly and indirectly owns shares in MTN