Behind MTN share offer

Assessing the opportunity and the risk

Kampala, Uganda | ISAAC KHISA | Commenting on the move by Uganda’s largest telecom company, MTN, to list on the country’s stock exchange, Stephen Kaboyo, the managing director at Alpha Capital Partners, sees opportunity.

“In my own prediction, MTN stock will be a good buy, will definitely be oversubscribed, and depending on the share allocation approach, I expect huge presence of retail, pension funds and other institutional investors, as well regional investors,” he said immediately MTN revealed the Initial Public Offer plan.

Kaboyo who heads a local firm focusing on sovereign asset management, foreign exchange trading and financial markets, is a veteran of Uganda’s capital markets. He said he expects MTN’s listing to deepen the capital market and by implication increase its visibility and attractiveness.

“It will help in building investor confidence in Uganda’s equity market and by extension boost the market capitalisation of the stock exchange,” he said.

There has certainly been no bearishness about MTN’s listing, but the bullishness from Kaboyo and others, has also been tempered by providence from professionals.

Keith Kalyegira, the chief executive officer at the Capital Markets Authority cautions investors; whether institutional or individual, to endeavor to understand the salient features of the offer as spelt out in the IPO prospectus, by seeking professional advice from any of the licenses professional investment advisors or participating brokers before investing.

He said by listing, MTN will reap multiple benefits including public relations value that comes with a being quoted company and urged other Ugandan enterprises and family owned businesses with ambitious growth plans to consider market based financing to finance their growth or refinance the expensive debt they may have.

Multiple other sources have also said in as much as investors need to invest their money in the company, they need to do so with caution.

“There’s certainly value in MTN Uganda but don’t put all your savings in there. Don’t look at it like a breakthrough of what you have been waiting for, no,” one of the sources said.

MTN Uganda opened the Initial Public Offer of its ordinary shares on Oct.11 ahead of listing on the stock market.

With each share priced at Shs 200, MTN Uganda aims to raise approximately Shs 895.56 billion (US$250milllion) from the sale of 4.47 billion shares or 20% of its ordinary shares.

MTN Uganda CEO Wim Vanhelleputte says the telco plans to invest more than US$300million mainly towards expansion in the network to grow its business.

The listing move is designed to enable the local population and their counterparts in the East African Community have a chance to own part of the lucrative business. But as with all investments in shares, the element of risk is not absent.

The tough decision-making has placed many potential investors in almost the same spot as others faced when MTN first ventured into the Ugandan market in the late 1990s.

Charles Mbire, the company’s current board chairperson, was among those that seized the opportunity. He is currently the only other shareholder in MTN Uganda with a 3.98% of the business equivalent to 892.2million shares worth Shs 178.4billion. Mbire acquired his shareholding at MTN Uganda’s inception in 1998.

MTN Uganda, which is a subsidiary of South African–based firm, MTN Group, has been very successful over the years. And Mbire has prospered with MTN. The company’s business prospectus for the IPO shows that in the year ending December 2021, Invesco Uganda; a company whose value is 70% held by Mbire, reached an agreement with MTN  Uganda to cancel  a recurring support services agreement at Shs11billion (US$3million).

Mbire says Ugandans investing in MTN have the opportunity to transact in the shares of the company and to realise the value of their investment because the capital markets on the whole will be strengthened with the USE benefitting from an increased market capitalisation and share liquidity.

Financial performance

MTN Uganda currently has 22.389 billion shares valued at about Shs4.48 trillion. It has consistently recorded growth in profits in the past five years, riding mainly on data and mobile money services.  The company recorded Shs96.3 billion in 2016; Shs 152.6billion in 2017; and Shs 219.5billion in 2018 as profit after tax.  The company also recorded Shs269.2billion in 2019 and Shs 321.6billion in 2020.

Despite the one-off termination payment to Invesco Uganda and another Shs50bilion (US$14million) one-off payment in transitional licence fees to the Uganda Communications Commission (UCC) which regulates the telcom market, MTN is still expects to record a modest 0.9% growth in profit after tax to Shs325 billion for the year ending December 2021.

MTN revenues have been on the upward trend. It recorded Shs1.30trillion in 2016; Shs1.43trillion in 2017; and Shs 1.55trillion in 2018.This later increased to Shs 1.71trillion in 2019 and Shs 1.88tillion in 2020.

But in the IPO prospectus, MTN Uganda also lists risks in its operations that could potentially see value of the shares upon listing decline and investors potentially losing all or part of their investment in the shares.

These among others include risks related to revenue. It says its revenue from the voice services is expected to decline, but the company expects this to be offset by growth in data services revenues.