Some MTN Clarity

 

“Before cell phones in Nigeria the fixed line infrastructure was laughable at best. I remember speaking to a Kenyan fellow who worked for a big multinational years ago, he recalls sticking in an application to get a fixed line on the day after he arrived, when his two odd year contract was up, he left and the fixed line had still not been installed.”


 

To market to market to buy a fat pig. Shout it from the rooftops. That line is used a lot in multiple songs. I recall watching “Fiddler on the Roof” as a child, we watched it outdoors at the “drive in”. For those of you younger than 25 or so, this may be a foreign concept, people used to drive into a movie and park a car, plonk and attach a 10kg listening radio on the window, and then watch a movie. How positively romantic! What does fiddler on the roof have to do with shouting it from the rooftops? I almost get the sense that Mr. Market waits for the Fed chair to stand and deliver the news, whilst she is balancing on the roof, belting out her tunes to us. Or delivering them on a fiddle. A fiddle is of course a violin, you can either be as ferocious as Paganini’s Caprice No. 5 or as sad and forlorn as Schubert’s Der Leiermann in Winterreise. OK, I cannot lie, I looked up the second bit. Being an optimist, strangely I was more aware of Paganini’s pieces, I can’t say that I wonder why.

Janet Yellen delivered a speech yesterday that suggested it was time, the tennis umpires “time”. The US economy is on the road to recovery and therefore strong enough to withstand the first rate hike (insert Paganini). Herewith the whole speech, delivered at the Economic Club of Washington, Washington, D.C.. Notwithstanding the gains made in the labour market, one cannot declare full employment she said (insert Schubert). Inflation is too low (touch of Schubert, a touch of Paganini). Yellen anticipates economic growth in the coming years at a moderate pace (again, mixture of both composers).

The paragraph that I think spooked most people (furious downside Paganini) was the following: “Were the FOMC to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and thus undermine financial stability.” Goldilocks! We need her and not the three bears chasing her away from her “just right” scenario.

So Mr. Market sold off, all major indices sold off, the broader market S&P 500 by over a percent, the Dow Jones Industrial down 0.89 percent, with the nerds of NASDAQ the “least bad” of the lot. Bearing the brunt of the selling were the commodity stocks, energy down nearly two and a half percent as the price of oil slipped below 40 Dollars a barrel (that is NYMEX WTI), the gold price this morning is at 1050 Dollars per fine ounce, the copper price is fractionally above the 2 dollars a pound mark. And the Dollar index, the anti-commodities measure as it were? That is above 100, the basket that measures itself against all the other major currencies globally, that flirts with a 52 week high.

I know this won’t make you feel better, I am going to tell you anyhow, the Euro is 15 percent weaker to the Dollar over the last 12 months. Yes, diverging policies on interest rates have meant that the Dollar has gained major traction relative to the other major currencies of the world. What is ironic is that the weaker Euro has in large part been really good for industrial giant Germany, just two days ago that unemployment print was a record in a reunified country. That brick, that wall, I know you liked that song, I know that your hairstyle was probably bleached, big and too long and I know that you had tight jeans that were faded. Don’t mock the fashion today, yours was certainly not that good either as you strutted your stuff, whilst listening to Pink Floyd on your Sony Walkman. They were so heavy you had to hold them. Cool right, just like your drive ins?

Locally we sold off sharply, from mid morning onwards into the close, the Jozi all share index ended the session down 0.73 percent. PSG group was at the bottom of the pile, down nearly six percent at the close, the company announced that they were raising 1.5 billion Rand through a book build, that amount represents 3 percent of the shares in issue. The proceeds of the sale “will be used to facilitate growth in PSG Group’s existing investments and to fund additional investment opportunities.”

I am not too sure why the liquidity improvements over five years in the release is relevant, the company points out that over the last three years liquidity has risen to 37 percent from 8 percent. I am presuming that is an annual turnover of shares, i.e. 3.7 out of ten shares in issue swap hands annually, compared to three years ago when it was less than one in ten. Yes there is demand, there are also existing shareholder interests. I suspect that there will be a similar situation to the Brait one, a sell off, they will announce that the funds have been raised and then het presto, the stock (all things being equal) will bounce back.

I guess that PSG is more than just a good financial services business, with that element of entrepreneurship, the decade long returns have been eye popping and are a testament to great deal making and solid management. Over 10 years the stock has been a 20 bagger, in other words, for each Rand invested at the end of 2005, it is now worth 20. Astonishing, not so? Of course there have been other rights issues along the way, I always feel mixed when companies use the equity market to raise funds, are there not other avenues to explore? It tells me on the one hand that the market wants the stock, wants to be a shareholder, it also tells me that the company feels that their share price might be at the top end of relative valuations, hence they can get the shares away. Did you know that PSG Group was a bigger business than Amplats, bigger than Mr. Price and bigger than Netcare? You do now.


 

MTN have released a SENS announcement this morning, saying that they have received a formal letter from the NCC and it reads as follows:

“MTN has received a formal letter dated 2 December 2015 from the NCC informing the Company that, after considering the Company’s request, it has taken the decision to reduce the fine on the MTN Nigerian business from the original N1,040,000,000,000 (One Trillion, Forty Billion Naira) to N674 Billion Naira which has to be paid by 31 December 2015. The fine relates to the late disconnecting of 5.1 million MTN Nigerian subscribers in August and September 2015.”

That again is not cut and dried. As the SENS points out: “The Company is carefully considering the NCC’s reply, however the Executive Chairman Phuthuma Nhleko will immediately and urgently re-engage with the Nigerian Authorities before responding formally, as it is essential for the Company to follow due process to ensure the best outcome for the Company, its stakeholders and the Nigerian Authorities and accordingly all factors having a bearing on the situation will be thoroughly and carefully considered before the Company arrives at a final decision.”

Before cell phones in Nigeria the fixed line infrastructure was laughable at best. I remember speaking to a Kenyan fellow who worked for a big multinational years ago, he recalls sticking in an application to get a fixed line on the day after he arrived, when his two odd year contract was up, he left and the fixed line had still not been installed. As Mark Zuckerberg pointed out yesterday, the internet really does uplift people out of poverty, equally it adds much needed jobs on the ground. Just as important, the economy diversifies away from one avenue, in this case we all know what it is.

What the NCC should really do is demand over and above the current Capex budget in Nigeria, the company should commit to a speedier ramp up of 3G tower roll out, that way the government can use the services provided by a private company to improve their fight against terrorism and corruption. Not look for stop gap measures to plug a hole in a yawning budget deficit. No. I suspect that this is not a closed book, battle hardened CEO Phuthuma Nhleko and the board have shaken up the management structure of the group, he will no doubt be working harder to look for another reduction and a more amicable resolution. We remain watchers of the situation.


 

Linkfest, lap it up

It is amazing what science is discovering – Researchers find new phase of carbon, make diamond at room temperature.

Population numbers can be a controversial topic. From an economic perspective, population growth translates into economic growth. As populations grow so do the number of customers but as importantly so do the number of employees for companies – How Demographics Rule the Global Economy.

It seems that the trend going into the end of this year is for hedge funds to return all the money to their investors – BlueCrest to Return All Outside Investor Money. The results show how difficult it is to have consistent stella returns, as soon as you miss the mark then money flows out.


 

Home again, home again, jiggety-jog. After a negative close in the US we will probably see the same. It will be very interesting to see how MTN trades today.


 

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

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