MTN’s share price rocketed on Monday, adding nearly R12bn to its market cap, as Africa’s largest mobile operator said payment giant Mastercard will take a minority stake in its burgeoning R100bn fintech business.
The Johannesburg-based group posted improved interim profit and announced the partnership with Mastercard, which will help it expand its suite of financial services products.
“Signing of the definitive investment agreements is expected to occur in the very near term as we approach finalisation of customary due diligence,” MTN said in an earnings report for the six months to end-June.
In reaction, its share price rocketed as much as 10.3% in Monday’s trading session before giving up most of the gains to close 4.9% higher at R135.86.
MTN’s fintech business brought it about R10bn in core earnings, or earnings before earnings before interest, taxes, depreciation and amortisation (ebitda), in the six months.
Mastercard’s financial backing of the business could be seen as a sign of confidence in MTN’s strategy to look for growth in financial services.
The deal, the financial details of which were not disclosed except that the transaction values the business at $5.2bn (nearly R100bn), slots into MTN’s broader narrative to build the largest and most valuable fintech business in Africa.
Valuation
“We’ll provide greater disclosures on investment amounts when we have closed and signed the long-form agreements. Mastercard will only announce what they’re investing when those have been signed,” MTN CEO Ralph Mupita said at a news conference.
“We’re a couple of weeks away from that,” he said.
MTN said that it is willing to sell up to 30% of the business.
Earlier in 2023, MTN said that it had received several bids for investment in the unit as part of a broader plan to boost shareholder returns, including a separation of the fintech business.
The deal with Mastercard advances MTN’s goal of getting a strategic investor, rather than a financial one, that will help it expand its suite of digital payments and lending products.
Mastercard “will support the growth and profitability of our fintech business’s advanced services, including payments, remittance and technology infrastructure development”, the group said.
The agreement with the payments provider also helps to cement the value of MTN’s financial services unit.
The cellphone group has long argued that the value of the financial services division is not truly reflected in its share price, prompting Mupita to set a break-up plan in motion.
At last count, estimates by JPMorgan analysts pegged the value of MTN’s fintech arm at more than $4bn in 2021.
Other analysts put the value at more than $5bn.
The now-agreed valuation with Mastercard would peg the fintech unit as a top 40 company in SA, above the likes of Bidvest, Sibanye-Stillwater, Remgro, Old Mutual and Exxaro. The valuation places MTN’s fintech business among the top players in the SA financial services industry, where giants such as Standard Bank, FirstRand and Nedbank dominate.
Estimates for rival M-Pesa, the best-known mobile payment business in Africa, vary. Analysts peg the unit’s value at $3bn-$10bn.
MTN, which is valued at about R256bn on the JSE, reported that its profit increased 7.3% year on year to R11.2bn and group service revenue grew 15.1% on a constant currency basis to R107.7bn in the six months to end-June.
Mupita said that operating conditions remain challenging in the reporting period because of continuing pressure in the macroeconomic, geopolitical and regulatory environments of the 19 markets in which MTN operates, while it is still looking to leave Afghanistan.
Economic conditions have deteriorated amid high inflation and weaker local currencies, while problems such as load-shedding persist in SA, one of the company’s largest markets.
Ebitda rose 13.5%, but the margin was down 0.5 percentage points on a pro forma basis to 44% as high inflation and forex depreciation pushed up costs.
Greater sales in data (24%), fintech (22%) and voice (6%) services drove the growth in sales, while the number of subscribers advanced 3.6% to 291.7-million.
No interim dividend was declared.
MTN expects its good performance in SA to continue in the second half of its financial year, but also for pressure on the margins on its core earnings to remain.
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