Increased load-shedding and an ongoing national power crisis overshadowed news on Thursday that MTN remains on track to possibly close a deal with investors for its financial services business in the first quarter of 2023. Its share price fell the most since December 2020, with sector rivals Vodacom and Telkom also taking a knock.
The group has been working on a plan to unlock value from its various businesses, including a separation of the financial technology (fintech) unit, its fastest growing new area of business.
In a trading update on Thursday, MTN said it “remains broadly on track with the managed separation of its fintech business and has launched the second phase of engagements with potential strategic investors into the group fintech business”.
The company expects the process to be completed in the first quarter of 2023.
MTN’s share price fell steadily after the update, closing the session 7.16% lower at R123.79, its biggest one-day fall in two years.
While the JSE was down on US inflation and interest rate hikes, local telecom operators were impacted by news that load-shedding and vandalism of network and tower sites has been more severe in the current quarter, compared with prior periods.
“The market is beginning to read the second-order effects of Eskom outages in an industry that delivers all its services on power. SA networks are in a crisis situation right now and beyond power outages are having to deal with vandalism of sites linked to battery theft,” MTN Group CEO Ralph Mupita told Business Day.
“The networks will not manage to deliver consistent 2G, 3G and 4G/5G availability with persistent stage 6-8 load-shedding.”
Shares in rivals Vodacom and Telkom also plunged 4.3% and 12.07% respectively on the day.
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 many regions are underbanked.
But the group has long argued that the value of the financial services division is not truly reflected in its share price, which at R124 gives it a market cap of R234bn, prompting Mupita to set a break-up plan in motion.
MTN is looking for a strategic investor. Unlike a financial investor that would only bring in capital, the group is hoping 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.
In November, the group reported the number of customers in its fintech business was 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%.
The fall in MTN’s share price could also be attributed to news that the group is considering selling some of its smaller operations in West Africa to focus on its core markets as part of a portfolio review, Bloomberg reported.
The group has been steadily moving out of the Middle East, with only its Iran business left in the region.
Taking the whole group into account, MTN said growth in service revenue for the 11-months to November 2022 was about 14.8% higher, “representing some acceleration” relative to the 14.3% growth reported up to the third quarter.
Group earnings before interest, tax, depreciation and amortisation (ebitda) margin for the period was “slightly lower” when compared with the performance to September, due largely to pressure in MTN’s home market, SA.
The group says its business continues to be affected by macroeconomic pressure characterised by increased costs of living and borrowing costs across its operations. In addition, the group has had to spend money to keep its network switched on during blackouts, particularly in SA and Nigeria.
Correction: December 16 2022
A previous version of this story left out the effect of load-shedding news on the broader telecom sector and respective share performance
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