SOUTH AFRICAN TELCOS TO UNVEIL RECORD PROFITS, LOOKING FOR ACQUISITIONS

Mergers, Acquisitions and Financial Results

Africa's top telecom firms are set to report record annual profits next week as the world's poorest continent embraces mobile phones, but investors want news on their future plans to crack untapped markets.

Former South Africa's fixed-line monopoly Telkom has predicted a 35-55 percent jump in headline earnings for the year to end-March, likely due to rigorous cost cuts and subscriber growth at its Vodacom mobile unit.

The continent's biggest cell phone operator by sales, South Africa's MTN, expects adjusted headline earnings to leap 40-50 percent, and investors will be focusing on how much money it is actually making from stunning subscriber growth in Nigeria.

MTN said in a statement it expected attributable earnings in the year to end March to leap 70-80 percent. Under new international financial reporting standards (IFRS), attributable earnings, which exclude goodwill amortisation, would rise 40-50 percent.

MTN has benefited from massive growth in Nigeria -- Africa's most populous country -- where it is the top cell phone operator, and the forecast for 40-50 percent EPS growth is largely in line with analyst expectations.

MTN reported a 21 percent increase in total subscribers in the third quarter and, emboldened by the forecast-beating figures, raised its full-year customer target for Nigeria.

The company garners most of its business from South Africa and Nigeria but has pledged to use its copious cash pile to expand further afield on the continent and in the Middle East.

Telkom announces results on Monday, June 6 while MTN publishes earnings on Thursday, June 9. Headline earnings strips out capital, non-trading and one-off items.

Analysts said they would be looking beyond the numbers for clues on both companies' plans to expand in Africa, which is drawing interest from foreign players keen to exploit the world's fastest-growing market for telecommunication services.

"It's M&A at large," said one Johannesburg-based telecoms analyst. "We'll be looking for more on Nigeria from Telkom and Vodacom. And on MTN the question is where is the big plan? Where are the new licences?"

Vodacom is locked in a behind-the-scenes bidding battle with British entrepreneur Richard Branson's Virgin Mobile for control of Nigeria's number 2 mobile phone firm V-Mobile, which the South African firm controversially quit last year.

Investors are keen for indications on how a Vodacom-V-Mobile tie-up would impact parent firm Telkom's plans to bid for control of Nitel, the fixed-line company in booming Nigeria.

Telkom and Vodacom have expressed joint interest in buying a majority stake in state-owned Nitel and its mobile unit M-Tel. Vodacom would have to pull out of any Nitel/M-Tel bid if it wins control of V-Mobile, and analysts say it would make little sense for Telkom to go it alone.

Investors want news on how MTN hopes to meet its aim of becoming the cell phone leader in developing markets after it failed to buy smaller rival Celtel and missed out on several licences this year. "It would seem that MTN is rapidly running out of attractive opportunities," said Barnard Jacobs Mellet in a research note.

Analysts will hone in on how much average revenue per user MTN is making in Nigeria, now that it faces tougher competition in the lucrative mobile pay-phone market and is extending its reach to poorer customers.

Dividends will top the agenda for shareholders keen to get their hands on healthy cashflow, as long as both MTN and Telkom fail to put their money to work on acquisitions.

MTN has said it would return cash to shareholders this year either via a bigger dividend or a share buyback if it failed to buy either another operator, or to nab new licences in uncharted territory. But some analysts said it may be loathe to pay up.

"It will be interesting to see how much of a dividend they pay given the lack of acquisitions, or whether they will come up with another excuse to hold onto the cash," said Merrill Lynch telecoms analyst Meloy Horn.

Reuters SA