MTN Slumps After Reporting First-Ever Loss on Nigeria Fine

Updated on
  • S. African wireless carrier hurt by $1 billion payout
  • Two biggest MTN markets also hit by weak economy, demand

MTN Group Ltd. suffered its first-ever loss last year after the fallout from a $1 billion fine in Nigeria was compounded by slack earnings in its biggest markets.

The Nigerian regulatory penalty chopped 4.74 rand from full-year earnings per share, the Johannesburg-based company said in a statement on Wednesday. Regulators also forced MTN to disconnect millions of customers in Nigeria, hurting results in its biggest market, and performance was weak in South Africa as well. Together, those factors wiped out all of MTN’s 2016 earnings, after the company reported profit of 7.46 rand per share in 2015.

MTN agreed to settle the Nigeria fine in June after eight months of negotiations. The penalty, reduced from an original $5.2 billion, was levied for missing a deadline to disconnect 5.1 million unregistered customers. The dispute led to a management overhaul at MTN, and investors are looking for improvement when incoming Chief Executive Officer Rob Shuter, a former Vodafone Group Plc executive, arrives next month.

“I would not be surprised if they are writing off as much as possible now so that new management can come in and sweep the floor,” said Bruce Main, a money-manager at Ivy Asset Management in Johannesburg, which has reduced its MTN holding. “I see the new management as a big positive.”

The shares slumped as much as 6.6 percent, the most on an intraday basis since June, and traded 3.2 percent lower at 114 rand as of 10:18 a.m. in Johannesburg. MTN is scheduled to report its full results on March 2.

The performance in Nigeria was hurt by the forced disconnection of 4.5 million customers by the government a year ago, regulatory penalties and the weakness of the naira against the dollar, MTN said. In South Africa, lower demand for mobile-phone contracts weighed on earnings.

“There have been systemic management issues for the last two or three years that have resulted in MTN reacting to external shocks and putting out fires,” Main said. The company should be “paying attention to regions where they are actually profitable and so they have lost some market share,” he said.

Iran, MTN’s second-biggest market in terms of customer numbers, is also facing uncertainty after the newly elected U.S. President Donald Trump criticized a U.S.-led deal to prevent the country building a nuclear weapon, according to Michael Treherne, an analyst at Vestact in Johannesburg. Sanctions against the Middle Eastern country were lifted as part of the agreement.

“All three of their major markets have question marks over them and as an investor you do not want to pay for that,” Treherne said.

MTN shares have declined 10 percent this year, valuing the company at 214 billion rand ($15.8 billion). Cross-town rival Vodacom Group Ltd. is valued at about 222 billion rand.

— With assistance by Renee Bonorchis

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