MTN OWNERS MAY BE IN LINE FOR A DIVIDEND WINDFALL

Mergers, Acquisitions and Financial Results

  The shareholders of MTN Group could receive a windfall through a special dividend after Africa's largest cellphone operator by revenue announced last week that it expected its headline earnings a share to surge between 30 percent and 40 percent for the six months to September.

Khulekani Dlamini, a telecommunications analyst at Investec Asset Managers, said the fact that MTN was sitting on a lot of cash was a concern. "The company has to deploy more cash somewhere and the upside is to give a special dividend to shareholders."

Dlamini said it would be interesting if MTN could decide to beef up the capacity of the second network operator, Telkom's future competitor, through commercial agreements. "This will be positive to the group and will not absorb a lot of cash."

His argument has been supported by the investment research firm, Merrill Lynch. In July, when MTN failed to acquire a licence in Saudi Arabia, Merrill Lynch said: "A shortage of investment opportunities had increased the chances of MTN Group declaring a special dividend this financial year."

As of June, MTN Group, which had cash in hand of about R5.3 billion at the end of March, has failed to enter four markets that included Saudi Arabia, Iran, Turkey and Kenya.

David Gibb, a telecoms analyst at Stanlib Asset Managers, said the challenge for MTN was to maintain this growth and "it's good that they are looking for new licences, but the financial numbers will slow down if they do not penetrate new markets".

However, Gibb said, the growth in the Nigerian business had been below market expectation.

During the 2004 financial year, MTN Nigeria grew revenue by 30 percent to R7 billion and MTN South Africa generated more than R15 billion in revenues.

Dlamini said the Nigerian business still had organic growth but competition was picking up. Gibb said: "Obviously, MTN will need another licence." A lot of this growth estimated in MTN's trading update would be coming out of Nigeria.

But, MTN said in the trading statement: "The board considers that basic headline earnings may not adequately reflect MTN's underlying economic performance given the inherent uncertainties over the valuation of a deferred tax asset, which will only be realised once MTN Nigeria emerges from the five-year tax holiday."

MTN shares rose 1.19 percent to close at R33.15. The telecoms sector increased 1.12 percent. MTN shares have increased 136 percent in the last two years. This performance has pushed its market capitalisation to more than R50 billion.

Business Report