Morgan Stanley have issued a report on Naspers, the ultimate holding company of the Multichoice/DStv pay-TV business, and says that Southern Africa is doing well for the business. Naspers is also backing the ‘GOtv’ brand being used by digital terrestrial TV broadcasting in 7 sub-Saharan countries (Zambia, Uganda, Kenya, Nigeria, Namibia, Ghana and Malawi).
Morgan Stanley says that this expansion does dilute Naspers operational margins because of the increased investment needed in the expanding systems.
While this increases the long-term potential valuation, new launches (as well as inter-country expansion) continue to dilute near-term margins due to investment in marketing and set-top box subsidies. Having ramped DTT subscribers from 150,000 in September to 180,000 in November, we see scope for Naspers’ GOtv band to reach over 300,000 subscribers by the end of March, with over 750k a reasonable target for the start of 2014. Allied to the higher-than expected starting ARPUs (~$8.50), we believe the rollout is progressing positively (so far) and Naspers is benefitting from its existing Pay-TV satellite business (especially via content). Buoyed by this initial success, and facing significant competition from companies such as StarTimes, it is possible that Naspers ultimately exceeds its original $300 million budget for DTT.”
The bank’s report suggests that Naspers can expect a CAGR of some 17 percent during the period 2011-2014 in terms of revenues, and helped by progress in the above mentioned countries.
As for South Africa itself, the bank states: “We retain our forecasts for Pay-TV in South Africa as we expect the business to remain defensive in the face of softer macroeconomic trends. The recent 6 per cent average price increases will further support 15 per cent revenue growth in FY13 (although 36 per cent FY margins will be well below 40 per cent in 1H13). Given the numerous delays and, we believe, limited long-term prospects, we do not factor in the impact from a DTT launch in South Africa until FY15. We continue to see regulation, rather than competition, as the key issue for Naspers. Importantly, there are no impending renegotiations for key content as a 3 year English Premier League contract starts next season.”