Our opinion on the current state of MC-GROUP(MCG)MultiChoice (MCG) is a leading entertainment company in Africa and one of the fastest-growing pay-TV broadcast providers in the world with 21.1 million subscribers in 50 countries. The company's 90-day subscriber base is split 42% (8.9 million) in South Africa and 58% (12.2 million) in the rest of Africa. The share was spun out of Naspers and separately listed on the JSE on 27th February 2019.
This company is probably close to an ideal company for the private investor because its income is mostly annuity income, in the form of debit orders, with a very diverse client group. It has virtually no working capital because it is essentially a service company and does not need to carry large stocks. It also does not have a large unskilled or semi-skilled workforce, although it has had union problems in the past.
The potential for pay-TV in Africa appears to be substantial but may be eroded by 5G internet access in the future and the existence of free online access through platforms. Icasa (Independent Communications Authority of SA), in its efforts to boost competition, is looking at changing the rules for dominance in the pay-TV market, which may impact on MultiChoice. This may include changing the rules for dominance in sports coverage which has been MultiChoice’s strongest appeal. This would impact on MultiChoice’s ability to negotiate exclusive sports contracts.
Obviously, this company is in the home entertainment business which received a boost from the COVID-19 lockdowns. On 2nd March 2023, the company announced that it had entered into an agreement with Sky News and NBC Universal to enhance the Showmax service and make it dominant in Africa.
In its results for the year to 31st March 2024, the company reported revenue down 5% and a headline loss per share of 715c compared with a loss of 301c in the previous year. Core headline earnings per share (HEPS) was down 38%. The company said, "The group's 9% decline in active subscribers was mainly due to a 13% decline in the Rest of Africa business as mass-market customers in countries like Nigeria had to prioritize basic necessities over entertainment, while the South African business showed more resilience with a 5% decline."
In our view, this is a solid blue-chip share which faces some problems with the alternative products available to its subscribers. On 5th February 2024, MCG reported that Canal+ had increased its stake in MCG to 35.01% triggering a mandatory offer at R105 per share to the remaining shareholders. The company rejected the offer as too low. On 28th February 2024, the company announced that the Takeover Regulation Panel (TRP) had ruled that since Canal+'s ownership of MCG had exceeded 35%, it was required to make a mandatory offer to buy out the remaining shareholders in terms of section 123 of the Companies Act (71 of 2008).
On 6th March 2024, the company announced that Canal+ had increased its offer to R125 per share. On 7th April 2024, the company announced that it had reached a cooperation agreement with Canal+ in terms of which it would work with Canal+ to implement the takeover. On 24th April 2024, the company announced that Canal+ had acquired 41.6% of its issued shares and it had filed the required notices with the Takeover Regulation Panel (TRP) and the Companies and Intellectual Property Commission (CIPC). On 16th May 2024, Business Day reported that Canal+ had increased its stake to 45.2%. On 4th June 2024, Canal+ made an offer of R125 per share for all the remaining shares in MC Group which it did not own.
Technically, the share had been falling since 6th March 2023 and we recommended waiting for a break up through the 65-day exponential moving average before buying. That happened on 19th December 2023 at a price of 7440c. After that, the share rose to just over R120 on 30th April 2024. Since then, it has been drifting down and has broken down through its 65-day exponential moving average.
In a joint announcement on 18th June 2024, Sanlam agreed to buy 60% of MultiChoice's insurance business. This move is expected to strengthen MultiChoice's position and offer new growth opportunities in the insurance sector.
