With the unbundling and separate listing of the MultiChoice Group in February, Naspers shareholders received one MultiChoice share for free for every Naspers share they held.
Since then the Naspers share price is up by more than 10% and MultiChoice shares are now valued at above R120 a share. Value has been created, with more likely to come.
MultiChoice is the leading pan-African video entertainment platform, offering satellite and digital terrestrial television as well as streaming in 50 African countries. The group services more than 15.4-million subscribers and generates about R50bn in revenue. This translated in the last financial year into a core headline loss of just over R1.6bn.
In 2018 diluted headline earnings was just over R1.4bn and the shift to loss was due to an extra 5% of the company’s shares being allocated to its BEE scheme. So if you added the R2.5bn empowerment transaction back, it would have attained a headline earnings number of about R900m. This is still down from last year — but the broader point is that MultiChoice is not a small business. In fact, it is one of the fastest-growing pay-TV broadcast providers in the world, and much of that growth is happening outside SA.
For the 2019 financial year, MultiChoice reported 7.4-million subscribers in SA, up around 12% from the previous year. In the rest of Africa its subscriber base grew by 17% to just over 7.6-million. Though revenue is up from R47bn to R50bn, top line remained roughly the same over the three previous financial years despite strong subscriber growth. To explain this we need to look average revenue per user (ARPU). MultiChoice’s ARPU fell by 3.2% to R335 per user per month in SA, and by 5.9% to R160 a month outside SA during financial 2018. This fell a further 4% overall in 2019. In SA, the ARPU coming down was slightly offset by growth in subscribers. But in the rest of Africa the impact of falling ARPU outpaced that of the 17% subscriber growth — which meant revenue edged down. The source of the falling ARPU is currency devaluation.
Times have been tough for some African countries. In Nigeria, where MultiChoice has 2.8-million subscribers, the naira saw a 30% devaluation from 2016 to 2017 and another 26% between 2017 and 2018. Angola and Mozambique have not fared well either, with both seeing more than 30% in net devaluation from 2016 to 2018. Over the past year the impact of devaluing currencies was not as severe. During the 2019 financial year losses made in the rest of Africa dropped by about R900m, which resulted in the group almost doubling free cash flow to R3.2bn.
MultiChoice plans to keep backing locally made content and leveraging its exclusive contracts and production capabilities around live sporting events.
It has an iron grip on the African market and is growing that market very quickly. With planned extensive global internet coverage and evolving technology, there will be some stiff competition in the form of media streaming.
The group is preparing for this with its Showmax offering — which it is pushing hard for adoption in SA. In the rest of Africa, there is not much competition, for now. The time to secure market share is now, before mass internet connectivity becomes available.
MultiChoice may have longer growth legs than the market currently suggests.
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