So the big day for MultiChoice Group (sharecode MCG) arrived as the owner of M-net, SuperSport and showmax has finally been unbundled from Naspers. So all the speculation about where the share price will trade at can finally come to an end.
Background on Naspers and MultiChoice
Below a bit of background on Naspers as well as MultiChoice group and our prediction of where the share price will trade at (as per our article we published on 21 January 2019 regarding the MultiChoice unblundling)
Naspers
Founded in 1915, Naspers is a global internet and entertainment group and one of the largest technology investors in the world, operating some of the world’s leading platforms in internet, video entertainment and media. Today, Naspers invests and operates in more than 120 countries and markets that the group believes have long- term growth potential, including China, Central and Eastern Europe, Russia, Africa, North America, Latin America, India, Southeast Asia and the Middle East. Naspers seeks to address big societal needs through technology by identifying changes in consumer behaviour early and building businesses that have scale, are profitable and generate healthy cash flows.
MultiChoice
MultiChoice, its subsidiaries, affiliates and associates (“MultiChoice Group”) is one of the leading video entertainment operators on the African continent, and one of the fastest growing pay-TV broadcast providers globally, entertaining 13.9 million households (as at 30 September 2018) across 50 countries. Its carefully curated local and international content is distributed across multiple platforms, including digital satellite and terrestrial television, as well as through OTT solutions. The MultiChoice Group is structured around the following three business segments: – South Africa, the MultiChoice Group’s division that offers digital satellite television and subscription video-on-demand services to 7.2 million subscribers in South Africa (as at 30 September 2018). Connected Video, which forms part of the South Africa segment from a financial reporting standpoint, delivers online video entertainment services to subscribers; – Rest of Africa, the MultiChoice Group’s division which offers digital satellite, online services and digital terrestrial television services to 6.7 million subscribers across Africa (as at 30 September 2018); and – Technology, which includes the MultiChoice Group’s leading digital platform and application security division, Irdeto.
Effects of the unbundling on Naspers
Note we do not think that MultiChoice will trade at a PE of 15. We merely used it as a benchmark PE ratio as it is close to the overall market average. We believe in the long run MultiChoice group will trade at a PE of around 8, due to the struggling segment they are operating in. Competition from online pay per view companies such as Netflix eating into their subscriber base. At a PE of 8 we see them trading at around R112 a share.
But don’t be surprised if on listing the price surges as large funds tracking the Top 40 (and don’t have a lot of exposure in NPN) needs to buy the share to have it in their funds. A gradual decline after the feeding frenzy mayhem of listing will then probably set in and MCG we predict will be trading at a PE of around 7/8 a few months after listing.
So where are MCG shares trading at? The screenshot taken from Sharenet earlier shows the price action of MulitChoice Group in the first hour of trading in the JSE today.
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