MTN is inching closer to closing a deal that will cause outside investment to be injected into its fast-growing financial services unit, a move that the group hopes will help to expand the business and realise an estimated R90bn valuation.
As voice revenues fall and margins shrink in mobile data services, MTN has been on a mission to grow new lines of business including financial services on the continent where few have a conventional bank account.
But the group has long argued that value of the financial services division is not truly reflected in its share price, which at R135 values the company at R254bn, prompting CEO Ralph Mupita to set a break-up plan in motion.
On Friday, the group reported progress with its process of strategic minority investment into the fintech business, saying that it is in the “binding offer phase”, expecting an outcome in the first quarter of 2023.
“We are encouraged by the growth and expansion of the fintech ecosystem as we see robust transaction volumes driven by growth in customers, agents and merchants,” said Mupita.
MTN is looking for a strategic investor. Unlike a financial investor that would only bring in capital, the group is probably looking to partner with an investor that has experience in the financial services sector and can assist with implementing plans to expand its suite of digital payments and lending products.
Staking a large part of its current and future growth on new business areas seems to be paying off as the customer base of the fintech business increased by almost a quarter, according to its latest quarterly results.
The number of customers of its fintech business is up 23.3% year on year to 63-million for the nine months to end-September while fintech transaction volumes rose to 9.5-billion, up 32.7%.
Peter Takaendesa, head of equities at Mergence Investment Managers, said a strategic investor as opposed to a financial investor for the fintech business holds a number of advantages.
“That is very important because the valuations of some of these businesses have come off quite a lot in the market. Hence, [some of] many companies that wanted to list ... suspended their listing plans.”
In 2021, analysts estimated that MTN’s mobile money business could be worth $5bn based on the multiples used to value Airtel Mobile Commerce (AMC), which sold a $200m stake to investment firm TPG that valued it at $2.65bn. At the time, AMC had 21-million users.
But a global economic downturn has seen valuations falling in an environment of high inflation and interest rate hikes.
“So if you have a strategic partner, maybe an industry player or company that has experience, they may take a longer [term] view and agree to pay [at] a decent valuation for the asset,” said Takaendesa.
MTN will probably not sell more than 30% in the unit, he said. The group is likely to realise that the real growth in such a business is still ahead of it and it wouldn’t want to give up too much shareholding in the early stages.
Given the fintech business requires much less investment compared with rolling out a network, a cash injection into the unit would inevitably go towards the group’s stated goal of paying down debt.
But the growth of mobile money has caused regulators starting to introduce controls or taxes on these platforms.
“In the near term, revenue growth has been affected by new taxes in a few markets, but we continue to see the case for structural and compelling growth for fintech services in the medium term that will deepen financial inclusion across Africa,” Mupita said.
MTN SA, the second-largest contributor to the group’s service revenue after MTN Nigeria, grew its subscriber base 8.1% year on year to 35.9-million, while the group’s overall subscribers climbed 6.8% to 285-million.
According to the latest figures, an active prepaid data subscriber in SA now consumes an average of 2.7GB per month, an 9% increase, and an active postpaid data subscriber uses almost 13.5GB monthly, up 20.9%.
High inflation, the rising cost of living and the effect of load-shedding was most acute in SA’s consumer prepaid market, where service revenue grew 0.4%, as consumers felt the effect of economic pressure and job losses.
“This was further worsened by persistent load-shedding, which had a significant effect on voice,” Mupita said.
Update: November 6 2022
This article has been updated with new information.
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.