To Buy MTC Shares or Not

• BROWN AMUENJEGIVEN THE CONSTANT enquiries from friends, family, and investment enthusiasts, it is prudent to share knowledge, experience and insight on MTC’s public offering.

The public offering and expected listing of the company took time, but on 17 September we were finally able to have an insight into and unpack the operational performance of MTC.

In essence, there is no clear-cut answer to the above question, because different investors have distinct investment objectives, strategies, and styles.

The premise of this piece is to share with the Namibian public what the key issues are to consider in answering the above question.

MTC is a leading telecommunications company which was established in 1994.

The company has exponentially grown over the last 25 years and currently employs more than 568 employees.

It generated revenue in excess of N$2,6 billion and profit of over N$772 million after tax in 2020.

The industry MTC is operating in is highly regulated, and thus requires significant capital.

In addition, the Namibian market size is also not that appealing to most regional, African and global operators.

For example, businesses like Vodacom and Safaricom are so big that entering the Namibian market does not significantly improve their financial statements.

Therefore, we think that competition in Namibia will be limited between MTC, Telecom, and Paratus.

Our view is that MTC will be around for some time, and that they will continue to dominate and monopolise the telecommunications industry in Namibia – especially the mobile space.

MTC is interesting from a performance perspective, because market share has been declining, yet revenue and profit continue to soar.

We ascribe this to MTC’s ability to sustain its subscriber base, thereby ensuring that their average revenue per user keeps growing.

Additionally, we suspect that MTC is able to sustain pricing power despite competition and global trends to reduce prices in the telecommunications space.

If you compare MTC operationally to its regional and African peers, such as MTN (in South Africa), Vodacom (in South Africa), and Safaricom (in Kenya), MTC is a superior business.

The company is delivering the best result when it comes to returns on equity, earnings before interest taxes and depreciation, margins, average revenue per user, and other valuation metrics.

MTC has virtually no debt, and this was one of my disappointments when we started to assess their financial results.

We think management could have reasonably increased debt and used those proceeds to further enhance profitability and the balance sheet.

There is no need for management to start operations somewhere in Africa or the world.

We believe they could potentially use that borrowed capital and buy shares in other listed companies telecom companies, trading on any stock exchange.

For example, MTN on the Johannesburg Stock Exchange traded at around N$50 in April 2020, and today it’s trading over N$135 in September 2021.

Management could have doubled this money had they bought MTN shares somewhere in 2020.

I believe the balance sheet needs gearing and the company’s management needs to be adventurous and take calculated risks, seeking to earn foreign currency, diversifying revenue streams, and by extension, enhancing profits and returns to shareholders.

Investors are also keen to know whether N$8,50 is a fair price to pay.

We think the price is reasonable given that MTC scores high on all valuation metrics and operational metrics, compared to local, African and global peers.

In our view, the excitement around the listing of MTC is truly justified, because it is a rare, ‘truly Namibian’ asset on the Namibian Stock Exchange.

This gives Namibians the opportunity to own what we term a ‘quality company’.

To us, a quality company should provide investors with the highest return on capital employed.

A quality company has an economic monopoly, low debt, and trades at an attractive valuation.

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