Nigerian NCC nutty

“How much is 200 thousand Naira? At the official rate, (the currency doesn’t float, it is managed) it is 1003.92 Dollars per unregistered subscriber. Now, as per the 3rd quarter subscriber update, ARPU’s in Nigeria were 4.99 Dollars. For comparisons sake in South Africa it is 7.42 Dollars. Divide the fine by the ARPU and you get to 201 months, or in years 16.76 years. Longer than the company has operated in Nigeria.


To market to market to buy a fat pig. Two different companies connected in a way across the two markets we watched weighed on their respective markets yesterday, firstly MTN sank over 12 percent here in Jozi, Jozi, more on that lower in company corner. Locally markets ended over one quarter of a percent lower, some stocks enjoyed really great sessions, Coronation Asset Managers rose over four and a half percent as the update and earnings guidance was well received, notwithstanding the fact that earnings are likely to be 5-15 percent lower. Obviously Mr. Market was expecting worse than that. Another noticeable winner was Aspen, that stock added over three and a half percent. The stock is still down 22 percent year to date however!

Also in the winning column was Naspers, that stock traded at an all time high yesterday, closing off those levels, still a percent and one-fifth better to 2055 Rand a share. Time for a split? It does not really matter, what matters more is the amount of value that you have allocated in the company, not the number of shares you own. Often retail investors are guilty of saying, I can’t get lots of shares with this amount of money. It does not matter, what matters is that the value that you hold, whether you own 1 share or 1000 shares.

Naspers news yesterday was that they had sold their two Czech businesses for a combined 201 million Dollars, after failing to merge it with a Romanian business. It happens, some businesses are just not meant to be integrated, realise when the time comes and move on I guess. This come hot on the news from Friday, we wrote about it: Naspers up stake in Avito.

Over the seas and far away, in New York, New York, another stock “doing badly” was Apple, ahead of their earnings report this evening. The estimates are out there, everyone kind of knows what they are looking for, a twenty percent plus jump in revenues, with the quarter expected to see sales clock 52 billion Dollars. The company is expected to show a 35 percent increase in iPhone sales from the comparable quarter, expectations are for 47.5 million phones to have been sold. Guidance will also be important. No need to speculate, the company will report after market this evening, we will have the extra-extra read all about it tomorrow morning.

After all was said and done, the three percent drag from Apple saw the Dow Jones lower by a little over one-tenth, the broader market S&P 500 sank nearly 0.2 percent, energy stocks weighed on the broader market, whilst the nerds of NASDAQ were buoyed by moves higher from Alphabet (Google), Amazon and Microsoft, the afterglow of earnings reports from last week.


Company corner

WTF? Really? Excuse me … The biggest news by a country mile yesterday was that the Nigerian Communications Commission (NCC) had imposed a fine of 5.2 billion Dollars on MTN. Why? As per the release: “This fine relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers who were disconnected in August and September 2015 and is based on a fine of N200,000 for each unregistered subscriber.”

How much is 200 thousand Naira? At the official rate, (the currency doesn’t float, it is managed) it is 1003.92 Dollars per unregistered subscriber. Now, as per the 3rd quarter subscriber update, ARPU’s in Nigeria were 4.99 Dollars. For comparisons sake in South Africa it is 7.42 Dollars. Divide the fine by the ARPU and you get to 201 months, or in years 16.76 years. Longer than the company has operated in Nigeria. EBIDTA margins in Nigeria are high, 57,3 percent at the half year stage.

Annual revenue last year was 53.995 billion Rand, or at current exchange rates 3.951 billion Dollars. EBITDA clocked 31.620 Rand (or 2.313 billion Dollars at current exchange rates) for the full year last year. Results from Nigeria are expected to be lower and a lot more muted this year than in years gone by. As such the fine represents 1.31 times last years annual revenue in the country, possibly more this year.

And in case you needed reminding, the total subscriber base in Nigeria as of the last numbers (that included the disconnections) was 62.5 million. I am guessing out loud here, I presume that the disconnections are normally marginal subscribers, i.e. not even close to the ARPU numbers mentioned above here. As the company said in their interim results, the regulator was “being difficult”: “While management continues to engage with the regulator, performance continues to be impacted by ongoing regulatory restrictions.”

In the release yesterday, the company said that “MTN Nigeria is currently in discussions with the NCC to resolve the matter in recognition of the circumstances that prevailed with regard to these subscribers.” Let us be clear here. If you want to attract capital to your shores where capital has choices, you had better think carefully how you treat businesses that promote the economy. Without the connections and with not much left to communicate across the country. I suspect that whilst it is too premature to dismiss the fine as insane and ludicrous (in the face of budgetary constraints globally, particularly in countries that produce commodities), it is a serious concern.

From my intelligence gathering, the one day drop experienced yesterday in the share price (of over 12 percent) is the biggest since 1998. MTN have only been operating in Nigeria for a relatively short time, having made their first call on the 16th of May 2001. They bought the licence for 285 million Dollars in January 2001, people said they were nuts, I remember. They have spent nearly 2 billion Dollars on infrastructure development. That came from private money, taking a risk (admittedly for higher returns), and again they were entitled to tax breaks for building said infrastructure.

So what do you do now? The shares are lower already. Do nothing. I am sure that there will be many high level calls, the news is already global. I expect the company to pay something, not nothing and it would definitely be a body blow. In all regards, it again is a reminder that doing business in places that are not as friendly to capital as in some others comes with the risks, as well as the high rewards.


Linkfest, lap it up

How much is a cracker? A biscuit? A packet of Salticrax is around 20 Rand, or less than a Dollar fifty. How about this then, The Titanic’s last surviving cracker sells for $23,000. That could buy you enough Salticrax to eat a pack a day for 43 years. In this case I hope for the purchaser of the single life raft survival cracker that this is NOT the way the cookie crumbles.

The things that science can do is mind boggling – Scientists can now “squeeze” light, a breakthrough that could make computers millions of times faster. Even the current technology to send video and voice over the airwaves, to billions of people is staggering.

Not many people know that the money spinner for Amazon is their web business, with produced 52% of their profits but only 8% of their revenue – Is Amazon Web Services A $100B Business?. Given that Amazon currently has a market cap of $280 billion, if their web services division is worth $100 billion alone, the rest of the business is worth $180 billion. Which doesn’t seem too expensive if you consider that the rest of the business is expected to have revenues north of $90 billion, putting it on a 2 times sales multiple. For comparisons sake Alibaba trades on a 14 times price to sales multiple.

Surely in the modern context where most people no longer work on farms, daylight savings is something should be done away with? I have never lived in a country with daylight savings, so I would not know – Turkey’s plan to ignore daylight saving time has been foiled by smartphones.

An interesting read from Ben Carlson. What is the phycology behind us looking for thrills on the stock market? – Satisfying Your Activity Addiction


Home again, home again, jiggety-jog. Stocks across in Asia are on balance lower, Japanese market down nearly one percent. There is of course the first of two days of the FOMC meeting in the US today, apparently that is very, very important. I doubt that they will pull the trigger and raise rates now, they may well prime markets for a December lift off and suggest that it is a certainty. Just to ease the tension. This relationship between Mr. Market and the Fed is too much for me, we will be more excited about the results from Apple.


Sent to you by Sasha and Michael on behalf of team Vestact.

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