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So the big day for MultiChoice Group (sharecode MCG) has arrived as the owner of M-net, SuperSport and showmax has finally been unbundled from Naspers. So all the speculation about where the share price will trade at can finally come to an end.
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Background on Naspers and MultiChoice
Below a bit of background on Naspers as well as MultiChoice group and our prediction of where the share price will trade at (as per our article we published on 21 January 2019 regarding the MultiChoice unblundling)
NASPERS
Founded in 1915, Naspers is a global internet and entertainment group and one of the largest technology investors in the world, operating some of the world's leading platforms in internet, video entertainment and media. Today, Naspers invests and operates in more than 120 countries and markets that the group believes have long- term growth potential, including China, Central and Eastern Europe, Russia, Africa, North America, Latin America, India, Southeast Asia and the Middle East. Naspers seeks to address big societal needs through technology by identifying changes in consumer behaviour early and building businesses that have scale, are profitable and generate healthy cash flows.
MULTICHOICE
MultiChoice, its subsidiaries, affiliates and associates ("MultiChoice Group") is one of the leading video entertainment operators on the African continent, and one of the fastest growing pay-TV broadcast providers globally, entertaining 13.9 million households (as at 30 September 2018) across 50 countries. Its carefully curated local and international content is distributed across multiple platforms, including digital satellite and terrestrial television, as well as through OTT solutions. The MultiChoice Group is structured around the following three business segments: - South Africa, the MultiChoice Group's division that offers digital satellite television and subscription video-on-demand services to 7.2 million subscribers in South Africa (as at 30 September 2018). Connected Video, which forms part of the South Africa segment from a financial reporting standpoint, delivers online video entertainment services to subscribers; - Rest of Africa, the MultiChoice Group's division which offers digital satellite, online services and digital terrestrial television services to 6.7 million subscribers across Africa (as at 30 September 2018); and - Technology, which includes the MultiChoice Group's leading digital platform and application security division, Irdeto.
NASPERS
Founded in 1915, Naspers is a global internet and entertainment group and one of the largest technology investors in the world, operating some of the world's leading platforms in internet, video entertainment and media. Today, Naspers invests and operates in more than 120 countries and markets that the group believes have long- term growth potential, including China, Central and Eastern Europe, Russia, Africa, North America, Latin America, India, Southeast Asia and the Middle East. Naspers seeks to address big societal needs through technology by identifying changes in consumer behaviour early and building businesses that have scale, are profitable and generate healthy cash flows.
MULTICHOICE
MultiChoice, its subsidiaries, affiliates and associates ("MultiChoice Group") is one of the leading video entertainment operators on the African continent, and one of the fastest growing pay-TV broadcast providers globally, entertaining 13.9 million households (as at 30 September 2018) across 50 countries. Its carefully curated local and international content is distributed across multiple platforms, including digital satellite and terrestrial television, as well as through OTT solutions. The MultiChoice Group is structured around the following three business segments: - South Africa, the MultiChoice Group's division that offers digital satellite television and subscription video-on-demand services to 7.2 million subscribers in South Africa (as at 30 September 2018). Connected Video, which forms part of the South Africa segment from a financial reporting standpoint, delivers online video entertainment services to subscribers; - Rest of Africa, the MultiChoice Group's division which offers digital satellite, online services and digital terrestrial television services to 6.7 million subscribers across Africa (as at 30 September 2018); and - Technology, which includes the MultiChoice Group's leading digital platform and application security division, Irdeto.
Effects of the unbundling on Naspers
So what is MultiChoice's earnings like? In the past it has been very hard to gauge the potential and value of MultiChoice due to it forming part of Naspers' earnings. But in their pre listing statement pro forma financial results have been published. We take a look at their pro forma financials below.
So while MultiChoice has seen strong subscriber numbers growth over the last three years, infact 29.4%, while revenue over the same period only grew by 1.4%. Their trading profit margins are in decline too. But looking at the number of shares MultiChoice plans on issuing, their trading profits and placing a PE ratio of 15 on MultiChoice shares, it will give the company a valuation of R94.8 billion (which will make MultiChoice the 21st largest firm listed on the JSE) or around R211 a share
Note we do not think that MultiChoice will trade at a PE of 15. We merely used it as a benchmark PE ratio as it is close to the overall market average. We believe in the long run MultiChoice group will trade at a PE of around 8, due to the struggling segment they are operating in. Competition from online pay per view companies such as Netflix eating into their subscriber base. At a PE of 8 we see them trading at around R112 a share.
But dont be surprised if on listing the price surges as large funds tracking the Top 40 (and dont have a lot of exposure in NPN) needs to buy the share to have it in their funds. A gradual decline after the feeding frenzy mayhem of listing will then probably set in and MCG we predict will be trading at a PE of around 7/8 a few months after listing.
So where are MCG shares trading at? The screenshot taken from Sharenet earlier shows the price action of MulitChoice Group in the first hour of trading in the JSE today
Note we do not think that MultiChoice will trade at a PE of 15. We merely used it as a benchmark PE ratio as it is close to the overall market average. We believe in the long run MultiChoice group will trade at a PE of around 8, due to the struggling segment they are operating in. Competition from online pay per view companies such as Netflix eating into their subscriber base. At a PE of 8 we see them trading at around R112 a share.
But dont be surprised if on listing the price surges as large funds tracking the Top 40 (and dont have a lot of exposure in NPN) needs to buy the share to have it in their funds. A gradual decline after the feeding frenzy mayhem of listing will then probably set in and MCG we predict will be trading at a PE of around 7/8 a few months after listing.
So where are MCG shares trading at? The screenshot taken from Sharenet earlier shows the price action of MulitChoice Group in the first hour of trading in the JSE today
So based on the current trading price of MCG shares it is very close to our estimated value of R112 a share (which should see it trade at a PE ratio of around 8 times.
27 February 2019: Midday update on MCG's first trading day
So by 13:00 on MultiChoice group's first trading day, the share has traded 20.48 million shares, and total value of trade on MCG's trades on its first trading day amounted to R2.16 billon according to data from Sharenet. While Naspers over the course of the day has only traded R1.2 billion worth of shares. Clearly showing that MCG is the most actively traded stock for the day.
11 June 2019: MCG warns of loss for the full year of around R8 a share
Yesterday MultiChoice group released a trading statement warning shareholders that it is set to make a loss for the full year financial reporting period. See the SENS below.
Trading statement
Shareholders are advised that the MultiChoice group ("the group") is finalising its consolidated annual financial statements for the twelve months ended 31 March 2019 ("current period"). Core headline earnings per share and trading profit Shareholders are reminded that the board considers core headline earnings per share and trading profit as the two most appropriate indicators of the operating performance of the group, as they adjust for non-recurring and non- operational items.
Compared to the group´s results for the twelve months ended 31 March 2018 ("prior year") included within the pre- listing statement, the group expects core headline earnings per share for the current period to be between 8% (30 ZAR cents) and 12% (45 ZAR cents) higher than the prior year´s reported 374 ZAR cents.
Trading profit is expected to be between 9% (R0.6bn) and 13% (R0.8bn) higher than the prior year´s reported R6,3bn. On an organic basis (i.e. reflecting results on a constant currency basis, excluding any M&A) trading profit is expected to be between 24% (R1.5bn) and 30% (R1.9bn) higher than the prior year’s reported R6,3bn. The improved financial performance expected for the current period is mainly driven by solid subscriber growth and a reduction in losses in the Rest of Africa segment. As explained in the pre-listing statement, core headline earnings per share and organic trading profit constitute pro forma financial information in terms of the JSE Listings Requirements.
The pro forma financial information is the responsibility of the group's directors, has been prepared for illustrative purposes only, and may not fairly present the group’s financial position, changes in equity, cash flows or results of operations. Core headline earnings is calculated by adjusting headline earnings for the following items, net of tax and non-controlling interests: a) amortisation of intangible assets arising from business combinations; b) accounting adjustments stemming from IFRS 3: Business Combinations; c) equity-settled share-based payment compensation; d) unrealised foreign currency gains/losses; e) certain fair-value adjustments under IFRS; and f) non-recurring current and deferred taxation impacts. Organic trading profit is calculated by excluding foreign currency movements and changes in the composition of the group. Loss per share and headline loss per share Compared to the prior year, the group expects loss per share for the current period to be between 673 ZAR cents and 739 ZAR cents lower than the prior year´s reported earnings per share of 332 ZAR cents.
Headline loss per share for the current period is expected to be between 724 ZAR cents and 800 ZAR cents lower than the prior year´s reported headline earnings per share of 410 ZAR cents. The key reasons for the movements above are set out below:
a) As disclosed in annex 7 of the pre-listing statement, the group had to account for the impact of allocating for no consideration a 5% stake in MultiChoice South Africa Holdings (Pty) Ltd to Phuthuma Nathi Investments 1 and Phuthuma Nathi Investments 2 as part of the unbundling process. As a result, loss per share and headline loss per share were impacted significantly by the once-off equity-settled share-based compensation charge recognised on what was an effective disposal of 5% of the group´s interest in MultiChoice South Africa Holdings (Pty) Ltd. While the impact of this transaction is removed from core headline earnings per share and trading profit, it is included in both loss per share and headline loss per share. This is expected to reduce earnings per share and headline earnings per share by 438 ZAR cents.
b) Furthermore, the impact of the depreciation of SA Rand against the US dollar has led to an increase in unrealised foreign exchange losses on translation of the group’s US dollar denominated transponder lease liabilities. This is expected to reduce earnings per share and headline earnings per share by 263 ZAR cents.
Further details will be provided in the consolidated provisional annual results, due to be released on SENS on 18 June 2019. The financial information on which this trading statement is based has not been reviewed and reported on by the Company´s external auditor.
End SENS
Looking at the share price below it looks like MCG shareholders took the announcement of a full year loss of R8 a share in their strides. The image below shows MultiChoice share price over the last 3 months
Trading statement
Shareholders are advised that the MultiChoice group ("the group") is finalising its consolidated annual financial statements for the twelve months ended 31 March 2019 ("current period"). Core headline earnings per share and trading profit Shareholders are reminded that the board considers core headline earnings per share and trading profit as the two most appropriate indicators of the operating performance of the group, as they adjust for non-recurring and non- operational items.
Compared to the group´s results for the twelve months ended 31 March 2018 ("prior year") included within the pre- listing statement, the group expects core headline earnings per share for the current period to be between 8% (30 ZAR cents) and 12% (45 ZAR cents) higher than the prior year´s reported 374 ZAR cents.
Trading profit is expected to be between 9% (R0.6bn) and 13% (R0.8bn) higher than the prior year´s reported R6,3bn. On an organic basis (i.e. reflecting results on a constant currency basis, excluding any M&A) trading profit is expected to be between 24% (R1.5bn) and 30% (R1.9bn) higher than the prior year’s reported R6,3bn. The improved financial performance expected for the current period is mainly driven by solid subscriber growth and a reduction in losses in the Rest of Africa segment. As explained in the pre-listing statement, core headline earnings per share and organic trading profit constitute pro forma financial information in terms of the JSE Listings Requirements.
The pro forma financial information is the responsibility of the group's directors, has been prepared for illustrative purposes only, and may not fairly present the group’s financial position, changes in equity, cash flows or results of operations. Core headline earnings is calculated by adjusting headline earnings for the following items, net of tax and non-controlling interests: a) amortisation of intangible assets arising from business combinations; b) accounting adjustments stemming from IFRS 3: Business Combinations; c) equity-settled share-based payment compensation; d) unrealised foreign currency gains/losses; e) certain fair-value adjustments under IFRS; and f) non-recurring current and deferred taxation impacts. Organic trading profit is calculated by excluding foreign currency movements and changes in the composition of the group. Loss per share and headline loss per share Compared to the prior year, the group expects loss per share for the current period to be between 673 ZAR cents and 739 ZAR cents lower than the prior year´s reported earnings per share of 332 ZAR cents.
Headline loss per share for the current period is expected to be between 724 ZAR cents and 800 ZAR cents lower than the prior year´s reported headline earnings per share of 410 ZAR cents. The key reasons for the movements above are set out below:
a) As disclosed in annex 7 of the pre-listing statement, the group had to account for the impact of allocating for no consideration a 5% stake in MultiChoice South Africa Holdings (Pty) Ltd to Phuthuma Nathi Investments 1 and Phuthuma Nathi Investments 2 as part of the unbundling process. As a result, loss per share and headline loss per share were impacted significantly by the once-off equity-settled share-based compensation charge recognised on what was an effective disposal of 5% of the group´s interest in MultiChoice South Africa Holdings (Pty) Ltd. While the impact of this transaction is removed from core headline earnings per share and trading profit, it is included in both loss per share and headline loss per share. This is expected to reduce earnings per share and headline earnings per share by 438 ZAR cents.
b) Furthermore, the impact of the depreciation of SA Rand against the US dollar has led to an increase in unrealised foreign exchange losses on translation of the group’s US dollar denominated transponder lease liabilities. This is expected to reduce earnings per share and headline earnings per share by 263 ZAR cents.
Further details will be provided in the consolidated provisional annual results, due to be released on SENS on 18 June 2019. The financial information on which this trading statement is based has not been reviewed and reported on by the Company´s external auditor.
End SENS
Looking at the share price below it looks like MCG shareholders took the announcement of a full year loss of R8 a share in their strides. The image below shows MultiChoice share price over the last 3 months
