MultiChoice Group

  • Revenue increased 2% to R26.1bn, with subscription revenues of R22.2bn increasing a   5% y-o-y. Group trading profit increased 19% to R5.7bn, benefitting from a   R500 million reduction in losses in the Rest of Africa and a resilient   performance in South Africa. The subscriber base increased by 6% y-o-y to   20.1 million users.

  • Core headline earnings, the board’s measure of sustainable business   performance, was up 41%on the prior period at R2.7bn. The strong earnings   growth was attributable to the improvement in trading profit and lower   realised foreign exchange losses.

  • Free cash flow of R2.1bn was down 13% compared to the prior period.   This was mainly due to the end of a contractual agreement on the southern   Africa transponder lease.

  • The balance sheet remained robust with cash standing at R7.3 billion   with debt levels negligible.

  • On a regional basis, South African revenue declined by 3% to R16.5bn   due to lower advertising (R600 million) and commercial subscriber revenues   (R300 million). The ongoing shift in subscriber mix towards the mass market   resulted in the monthly average revenue per user (ARPU) declining 5% from   R292 to R278. Trading profit increased 12% to R5.8bn due to intensive cost   management.

  • In the Rest of Africa, revenue increased by 11% to R8.7bn. Subscription   revenue grew at a similar rate and contributed R8bn. On a positive note, ARPU   improved to R118 compared to R111 in the prior interim period. This increase   was supported by the weaker rand versus most local currencies as well as   inflationary price increases. Trading losses narrowed by 59% or R500 million   to R300 million driven by a combination of revenue growth, effective cost   control, content refunds and lower content costs with football leagues being   delayed.

  • Canal+, owned by French media conglomerate Vivendi, has already   purchased 12% of the MultiChoice Group’s this year which has seen a sharp   increase in the share price over the last several weeks. Under current   legislation foreign entities are entitled to own up to a maximum 20% of local broadcasters although   a draft white paper on audio-visual services, published last month, has   proposed relaxing this restriction from 20% to 49%. This could pave the way   for Vivendi to become the majority shareholder.

  • Although the Multichoice Group is facing headwinds in the mature South Africa market, the African business continues to register robust revenue growth and is projected to break even in the next few years. Multichoice’s market capitalization is currently  R55 billion and with the South African operations' trading profit expected to be in the region of R12 billion for the full year, investors are paying 4.6x  trading profits for this operation which in our view values the African options at a negligible amount.

MultiChoice Group