Market players punished MultiChoice on Thursday, sending shares off a cliff in afternoon trade as the group warned of an earnings drop of more than than 100%.
On Thursday, the DStv operator said it financial performance for the year ended March 2023 benefited from “strong subscriber growth, the Rest of Africa returning to profitability, and cost savings (from the group’s established cost optimisation programme) exceeding targets.”
“This was, however, tempered by the impact of a challenging SA environment and increased investment in decoder subsidies and marketing related to the 2022 Fifa World Cup.”
While trading profit and core headline earnings — the group's two preferred earnings metrics — are both expected to be higher for the period, the market took notice of the huge drop in its earnings per share and headline earnings per share (HEPS) figures.
The group expects HEPS — which strips out the effect of one off financial movements — to be between 671c and 690c lower than the 381c reported in the prior year. This translates to a drop of between 176% and 181%.
As such, the stock dropped almost 6% in afternoon trade on Thursday, having regained some of those losses to trade 3.57% weaker by 3pm at R95.19 a share. So far in 2023, the share has lost 20.92% of its value.
The reduction in earnings is due to higher unrealised foreign-exchange losses on the translation of the group’s dollar liabilities and an increase in foreign-exchange losses associated with the repatriation of cash from Nigeria at the parallel market rate.
Earnings per share was also affected by an impairment of MultiChoice’s recently acquired KingMakers Group, now valued at R8.9bn at 100%, “driven by increases in discount rates in both the broader gaming technology sector and Nigeria in particular, and a more negative Nigerian Naira currency outlook”.
Africa’s largest pay TV operator is expected to release its full year financial report in the coming week.
All this comes as in May, the group unveiled Moment, a new division that will process and aggregate payments across the African continent.
At its recently held capital markets day, the group's online streaming service, Showmax, said it was looking to start making profit in the next four years, driven by its investment in local content and a partnership with US entertainment giant Comcast. The MultiChoice subsidiary has laid out an ambitious goal to make $1bn over the next five years.
The group took its investment up a notch earlier in 2023, entering an agreement with media giants NBCUniversal from the US and the UK’s Sky, to create a new Showmax service.
The new Showmax group is 70% owned by MultiChoice and 30% by Comcast-owned NBCUniversal, and powered by its Peacock technology.
According to Thursday's trading update, costs associated with finalising this deal are a big reason for the expected 0%-5% drop in trading profit for the period.
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