MultChoice a strong tip for 2014

MultiChoice and its DStv operation is owned in the main by South African conglomerate Naspers, and a major 18-page report from investment bankers Morgan Stanley must make very happy reading for the company. Naspers has just unveiled its full year 2013 results, and the bank’s report says to expect more good news for 2014 especially from the company’s TV businesses. 2012 saw Multichoice enjoy its best-ever year in terms of new subscribers.

The final results were much in line with expectations, with $2 billions-worth of revenues, although losses were around $300 million because of Naspers’ investments in growing media/telco-related businesses such as Russia’s ‘Mail-ru’, ‘We-Chat’ (400 million users) and Hong Kong-based ‘Tencent’. Nevertheless, Morgan Stanley is raising its target price from (Rand) 660 to 763, representing a 9 per cent uplift on current prices.

A year ago the bank was worried about competition in pay-TV, although that has now mostly dissipated.  “Group Pay-TV revenue grew 20 per cent y/y to R30bn (~40 per cent of proportionately consolidated group revenue),” says Morgan Stanley. “The revenue growth was driven by an impressive 20 per cent y/y growth in subscribers and steady ARPU at ~R300 per month. On closer look, the 1.13 million net new customers added in FY2013 is the highest rate over the past 5 years and also shows an acceleration in 2H (394k in 1H and 734k in 2H) due to the rollout of DTT.”

“The total subscriber base is now 6.74 million across 48 countries in Africa (4.5 million in SA and 2.3 million the rest of Africa). DTT rollout continues and is now in 8 countries and 376,000 households – we expect management to target more new licences to cover most of its 48 Pay TV countries. This may raise the overall level of required investment from $350 to $450 million. Operating margins remained steady at ~25 per cent despite +23 per cent y/y development spend and +15 per cent y/y programming costs. Although subscriber mix is continuing to shift towards the low-middle end of the market and development costs remaining high, we note that competition remains manageable in most of Naspers’s Pay TV markets and mid-single digit pricing power remains in its key SA market. We forecast 23 per cent reported revenue growth in FY2014.”

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