High net debt, Iran worries send MTN shares tumbling

MTN Group has warned that renewed US-led economic sanctions against Iran had once again tied up funds in its second biggest market, scuppering plans to turn the country into a cash cow after years of troubles.

The company repatriated almost US$1-billion from the country in 2017 after the lifting of a previous round of restrictions, and had embarked on a $750-million plan to extend fibre-to-the-home broadband connections to the country’s cities. That project is now on hold, and the difficulties taking out cash have returned.

“We have discounted any cash flows from Iran for the next three years,” chief financial officer Ralph Mupita said at a presentation in Johannesburg on Wednesday. The company had 44.5 million customers in the country at the end of 2017, compared to more than 223 million across all its 22 markets.

MTN joins a host of international companies forced to tear up their Iran polices as a result of US President Donald Trump’s decision to walk back from a 2015 nuclear agreement. Daimler, the German maker of Mercedes-Benz, said on Tuesday it will freeze operations in Iran, including a plan to make trucks, while Airbus has delivered only a small portion of the 100 aircraft it agreed to send before sanctions were reestablished.

MTN shares slumped 6.1% as of 11.42am in Johannesburg, the most in more than a year, extending a decline for the year to 22%.

Of further concern was net debt, which the company said in a statement increased to R69.8-billion as of the end of June, compared to R57.1-billion rand at the end of 2017. That was partly caused by a higher final dividend paid last year, although that will be lower in 2018 in line with a new policy outlined in March.

“The debt levels are high,” Peter Takaendesa, an analyst at Mergence Investment Managers, said by phone from Cape Town. “I hope they will address that with the €260-million they made from Cyprus,” he added, referring to the recent disposal of MTN’s smallest business.

Mupita confirmed that proceeds from the Cyprus sale and initial public offerings in Ghana and Nigeria would be used to improve debt.

Portfolio review

MTN is reviewing its portfolio across the Middle East and Africa even after selling the Cyprus business. The examination is ongoing, with conflict markets including Syria and South Sudan under scrutiny. As well as disposals, MTN is keen to enter new markets such as Angola and Ethiopia — which have both recently indicated they are open to foreign investors.

“We want to be number one or two in the markets that we are operating in,” CEO Rob Shuter said by phone. “We need a decent regulatory environment to operate in. All war-torn areas will always be under review.”

MTN’s subscriber numbers increased by 2.8% to 223.4 million as of end-June, while headline earnings per share declined to R2.15 from R2.31. The earnings before interest, taxes, depreciation and amortisation margin is expected to widen over the next few years and service revenue will increase by upper-single-digit percentage points, it said.

MTN reiterated a pledge to increase dividends by as much as 20%/year over the medium term. The full-year payout to shareholders will be R5/share in 2018, compared to R7 last year, the company said.  — (c) 2018 Bloomberg LP