Africa’s largest mobile operator, MTN, could be in for a windfall as subsidiary Jumia prepares to list on on the New York Stock Exchange.
MTN owns 40% in Africa’s largest e-commerce business. The Nigerian-based Jumia hopes to raise $250m when it lists in later this month. Bankers are estimating a $1.5bn valuation for Jumia, which will value MTN’s stake at $600m.
“That is a very meaningful amount of money and probably not something that has been factored into the MTN valuation for some time,” says Steve Minnaar, equity analyst at Abax Investments. He says the rumoured date of listing is Wednesday April 10, but this is doubtful as the company has announced it will be on an investor road show at the time.
Regarding the date, Michael Treherne, a portfolio manager with Vestact Asset Management, echoed the sentiment, saying that despite indications that the listing will happen next week, he is “not holding my breath”.
“Like many other online retailers, [Jumia] remains loss-making, requiring a leap of faith for potential investors as to where and how they will eventually generate cash flow that one can put a more concrete value on,” says Minnaar.
According to documents filed by Jumia to the US Securities and Exchange Commission (SEC), the company has managed to get some major investors, such as Mastercard and Pernod Ricard at about 5% each. “[Such companies] with deep pockets would probably want to grow the business aggressively — hence requiring new cash injections,” Minnaar said.
“In that scenario, MTN should not remain as the 40% investor as they do not have the cash to invest. It would probably be better for MTN to sell down their stake,” he said, “and perhaps retain a small minority stake for potential future value increase.”
MTN has indicated it intends to sell its stake in Jumia as the mobile operator looks to refocus its business and move away from non-core assets. “I wouldn’t be surprised if part of the shares being listed are the MTN stake,” Treherne said.
Treherne predicts the money is likely go towards paying down MTN’s debt, which was at R63bn according MTN Group’s latest financial statements and also ; as well as refocusing the business and paying dividends to shareholders.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.