Our opinion on the current state of MC-GROUP(MCG)MultiChoice Group (MCG) is a major player in the African entertainment landscape and ranks among the world’s fastest-growing pay-TV providers, boasting 21.1 million subscribers across 50 countries. The subscriber demographics split with 42% (8.9 million) located in South Africa and the remaining 58% (12.2 million) spread across the rest of Africa. Since its spin-off from Naspers and subsequent listing on the Johannesburg Stock Exchange on 27th February 2019, MultiChoice has positioned itself as an attractive investment, particularly due to its reliable annuity income derived from debit orders across a diverse customer base.
The company operates with minimal working capital, typical of service companies, which negates the need for large stock inventories. Despite its streamlined operations, MultiChoice has faced union challenges historically, although it does not employ a large unskilled or semi-skilled workforce. The potential for pay-TV growth in Africa is significant, though future challenges may arise from advancements in 5G internet technology and the availability of free online content, which could erode traditional pay-TV’s market share. Additionally, regulatory changes by the Independent Communications Authority of South Africa (Icasa) aimed at increasing competition could impact MultiChoice’s dominance, particularly in sports coverage, which is a major draw for the service.
The COVID-19 pandemic initially boosted the home entertainment sector, aiding MultiChoice’s business. On 2nd March 2023, the company enhanced its competitive edge by partnering with Sky News and NBC Universal to bolster its Showmax service, aiming to dominate the African market. However, the first half of the financial year up to 30th September 2023 saw a slight decline in revenue by 1% and headline earnings per share (HEPS) by 5%. The overall 90-day active subscriber base saw a contraction of 2%, although the Rest of Africa base experienced a modest growth of 1%. The South African operations were notably affected by extensive power outages, impacting nearly half of the days in the reporting period.
On the corporate front, significant developments include Canal+'s increased stake in MultiChoice, which as of early 2024 triggered a series of mandatory takeover bids, initially deemed too low by MultiChoice but subsequently raised to a more acceptable R125 per share. By April 2024, Canal+ had acquired a 40.01% share, leading to necessary regulatory filings with the Takeover Regulation Panel and the Companies and Intellectual Property Commission.
From a technical standpoint, MultiChoice’s share price has been on a downward trend since March 2023 but experienced a rebound after breaking through the 65-day exponential moving average on 19th December 2023 at a price of 7440c. The share price has since climbed to 11750c, illustrating a significant recovery. MultiChoice remains a solid blue-chip stock, albeit with some exposure to the volatile dynamics of competitive products and regulatory changes. This investment scenario suggests that while risks exist, the company's strategic initiatives and market adaptations could continue to provide substantial value to investors.
