By Livingstone Mukasa
Ever since it became apparent that MTN Uganda was going to list on the Uganda Stock Exchange I have
been bombarded with calls to advise if it’s a good buy.
Today I got my hand on the MTN Share Offering Prospectus and I immediately went to work on it. You see, I have a small community of people that consider me their “People’s Professor” and it’s a responsibility I don’t take lightly. Over the years I have made the right calls investing in Uganda Clays offering, Stanbic Bank and Safaricom but sitting out CIPLA.
From the word go I want to state that I am not a licensed investment advisor and therefore I am not responsible for the way you use the information shared below.
1. It's not a growth offering. The company is not raising money to grow its business rather to pay its shareholders. As an entrepreneur, I don’t generally like these kinds of deals where I am a replacement for someone who has already made their money.
2. The earnings per share averages 16% per year over the last 5 years. With a dividend policy of not paying more than 60% of Profits after-tax, it translates into a 9.6% in profits against revenue.
Not exciting considering the trouble the company must go through to earn that revenue.
3. MTN routinely outsources major/critical functions like masts and infrastructure provision and maintenance. This poses a risk of cost overruns/adjustments that are not beneficial to local ownership.
4. Taking Mobile Money Financial Services (Mobile Money) off the table means that they have taken the fat out of the meat. It’s interesting to see that the information about Mobile Money business is liberally included in the prospectus but the business is not.
5. The Convoluted nature of MTN ownership makes me a little bit uncomfortable. Even if I am a minority shareholder I like to know the people I am doing business with. MTN Ownership structure involves 4 companies (as in one company owns the other) before you get to MTN Uganda Limited. In that case, it’s hard to know who calls the real shorts. This has tremendous implications in business because without knowing who they are, they become hard to influence.
6. Revenue growth over the last 5 years for Data and Voice has been slow and it’s likely to decline especially for Voice. Value extraction from revenue is also low for a technology-led company. It expects Revenue of UGX 2.065 Trillion in 2021 but only 325 Billion in Net Profit after Tax. This is 15.7% of Revenue and only 9.4% may be declared as dividends.
7. The proceeds from the sale of UGX 895 Billion (if all shares are subscribed) will go to the selling shareholders and not to pay down debt or expand the business. Yet the company is sitting on some serious debt of about UGX 612 Billion. In this regard, MTN Uganda is a highly leveraged operation and one that has serious ongoing interest payments to make. It’s interesting to note that the Lion share of the debt is either originated or Consortium-led by South African Banks operating in Uganda.
8. In the prospectus MTN says it cannot guarantee a dividend payout every year and states in the prospectus, a risk of a capital call (asking you to invest more money) in the future.
If you decide to buy MTN Shares nonetheless, please avoid the following:
a) Don’t borrow money to buy MTN shares
b) Don’t sell your assets to invest in MTN shares
c) Invest what you can afford to lose or wait out for a long period of time
d) If you have never bought shares in public offerings, invest some money for learning purposes
and not to earn a fortune.
The writer is a financial advisor, entrepreneur, and the author of “The Great Financial Rebuild” & “Investing for the Future”
Tel: +256772459167; email: email@example.com