MTN IPO: It's risky to rely on speculators

Friday October 15 2021
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The decision to invest in MTN should not be dependant of speculation but facts. PHOTO | FILE

By Othman Semakula

Be sure, it will be long before Uganda witnesses another initial public offering (IPO) such as MTN. 
No doubt, we have not seen anything like it before. Perhaps, the closest we have seen was Safaricom, but it was possibly thousands of kilometres away for many of us to understand the oomph. 

Admittedly, it is crunch time, especially for equity markets. They have been yearning for such an IPO and it could not have arrived at a better time than now. 
But what does it present for investors, in a country with limited opportunities and an equity market that is struggling to mature in a sea of needy businesses. 
First and foremost, as an investor or even a bystander, it is risky to believe that some invisible social media analyst will make the best decision for you. 

Take matters in your hands. You will be amazed at how quickly you will arrive at a less crowed and unbiased decision. 
It is risky to give in to prejudice of invisible analysts, whose authority you cannot qualify or quantify. 
As you might already have seen, there is a crowd of half-truth analyses flying around. 

Many of which are originated by pseudo analysts whose claim to fame is having a phone or a computer, some data and the courage to write and share anything. 
Much of the information that has been shared contains half-truths and twisted lines that are outright lies written to drive a certain narrative. 
For instance, there has been a rumour that the mobile money business is not part of what is being floated. 
However, this is a fact that has already been put on paper for anyone to see.

The prospectus is a public document that has been made available with the purpose of informing investor decisions, based on an analysed position of the telecom in all aspects.  
In the 260-page prospectus realised on Monday, MTN explicitly highlights that on November 27, 2020, it established a subsidiary - Mobile Money Company - to conduct its business of payment systems operator and payment service provider for electronic money. 
This had been a result of the enactment of the National Payments System Act, which assigned the separation of mobile money from telecommunications services.
  
In the same prospectus, MTN further explains the source of its revenues with 50.9 per cent, as of December 31, 2020, coming from voice, while 26.4 per cent came from mobile money. Data, during the period, contributed 18 per cent. 
Therefore, suggestions that the mobile money business is not part of what is being offered to the public, are just distortions and only help to build apathy and a skeptical society that fears anything. 

It should also be noted that mobile money is not MTN’s cash cow. The biggest chunk of its cash comes from voice, which even at the fear of apparent decline, will remain so in the next five or so years but with a safe buffer in data, whose prospects are yielding huge returns due to an increase in smartphone penetration.  
But beyond this, is the apparent conjecture in regards to MTN’s numbers that have been skewed by some pseudo analysts to feed into certain narratives. 

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MTN’s numbers speak for themselves. They need very little help to convince anyone. 
For instance, in the last five years, to the period ended December 31, 2020, MTN has maintained a profitable streak, with an average profit growth of about Shs56.5b. 
Therefore, its profitability is not in question and it projects to get much better as technology-led prospects take centre stage in the increasingly widening digital space. 

Even with a threat on its current cash cow - voice - the digital space, where MTN is very active, presents better prospects to cover what will be lost.  
Over the last six years, MTN’s profits after tax have grown from Shs96b in the period ended December 31, 2016 to Shs322b in December 2020. 
The massive growth, during December 2020, came amid a number of challenges resulting from Covid-19 related disruptions. 

According to data provided in the prospectus, MTN expects to close 2021 with a profit margin of about Shs325b, which will increase from the Shs131b already posted for the half year ended June 30.  
Of course, the projections indicate a massive slowdown in profit growth, but it tells of the telecom’s resilience in a period where Covid-19 and the just concluded electioneering period, have wreaked havoc in a number of business spaces.  
Outside banking, MTN controls one of the largest assets portfolio, with an average annual growth of at least Shs312.8b. 

In the last six years, MTN’s assets have grown from Shs2.7 trillion during the period ended December 31, 2020, from Shs1.5 trillion, for the period ended December 2016. 
The growth has been progressive since 2016, save for the period ended December 31, 2017 when the company experienced a drop to Shs1.4 trillion or by Shs57b.  
At the Uganda Securities Exchange, it will only be Stanbic, among the locally listed companies that will have a superior assets portfolio than MTN.
 
As of December 2020, Stanbic, which is Uganda’s largest bank, controlled an asset value of Shs8.58 trillion.
However, at Shs241.6b, Stanbic had a relatively inferior profit position than MTN, which during the same peried saw profit margins grow to Shs322b. 
Compared to others, MTN will, if the current projections are to go by, sit above Umeme in terms of profitability and assets position.  
During the period ended December 2020, Umeme reported an asset value of Shs2.6 trillion while profits stood at Shs43b. 

Therefore, the decision to buy into MTN should not be left to prejudice. It is the numbers that should speak.
Already, the Capital Markets Authority has indicated that MTN will be a listing in its own league with the likelihood of doubling the size of the Uganda Securities Exchange from just Shs4.2 trillion to above Shs8 trillion. 
In coming onto the stock exchange, MTN was not seeking to mobilise investment capital. 
It is acting on the requirement of the law that seeks to offer Ugandans a window in which they can share into the profits of companies that make billions of shillings out of Uganda.

Therefore, with such profitability and a divided policy payout of 60 per cent of annual profits, it is a bet that anyone would not want to miss. 
Compared to others, Umeme has a dividend policy payout of 50 per cent of annual profits, while British American Tobacco Uganda pays out 100 per cent of its profits in dividends.  

Stanbic varies its dividends payout but has since 2017 averaged at 45 per cent of annual profits. 
Therefore, if you dont trust your own judgement, seek expert opinion instead of relying on speculators.    

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