MTN’s attractive returns
08 August 2012 | HILTON TARRANT
The group yesterday declared an interim dividend of 321c per share, an increase of 17% on 2011’s first-half dividend of 273c.
In the six months, it grew adjusted headline earnings per share (Heps) by 14%.
The forward dividend yield, based on the group growing earnings and dividends at current rates as well as the current share price of around R155, is closer to 6%.
At these yields, one sees MTN start to align with its global peers, despite its higher growth prospects.
Vodafone is on a trailing yield of 7.2%, with a forward dividend yield of 6.7%. Before cutting its dividend to pay down debt amid problems in Spain, Telefonica was on an even higher yield.
The halved payout in 2013 still gave it a yield of 8.6%. AT&T is on a yield of 5%. Deutsche Bank puts the sector average (for mature global operators) at 8.1%.
Local rival Vodacom is on a dividend yield of 7.32%.
It’s worth remembering too that MTN has to maintain strong dividend flow, given the need to fund its R8bn Zakhele BEE transaction implemented in 2010. Vodacom has a similar situation with its YeboYethu deal.
Aside from the dividend payout, which is cash-outflow neutral to MTN, the company is buying back shares as part of what group CEO SifisoDabengwa calls its “shareholder return strategy”.
Dabengwa says that in the first six months of the year, the company spent R2.088bn on buying back its shares.
During 2011, it spent R930m on share buybacks.
This puts the total at R3.018bn, equivalent to 1.2% of the company’s issued shares in the past 18 months.
Between January and the end of June, MTN has traded in the range of around R128 to R144 per share.
The group says it will continue buying back its own shares on an “opportunistic basis”.
It shows the balance between dividends and buybacks in its presentation, highlighting that with buybacks, there is “flexible timing” and that “step changes (are) possible”.
Operators are such large dividend payers because they generate enormous piles of cash, and right now there are precious few opportunities for either MTN or Vodacom to use their excess cash for anything else (despite both having significant capital expenditure budgets).
MTN also sits in a healthy net cash position (gross debt R35.5bn vs gross cash of R43bn).
The opportunities for MTN to buy attractive assets have all but dried up, given that it has not concluded any significant purchase since the $5.5bn deal for Investcom in 2006.
It says it continues to seek “value accretive M&A opportunities”, but it will realistically only look at markets where it can be number one or number two.
Right now, there are less than a handful of these available in Africa and the Middle East.
Into the future, there’ll be even fewer opportunities, and we should see MTN’s dividend yield rapidly catch up to that of its peers.
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