MTN Uganda: What you need to know about the company and its IPO

On October 5, 2021, MTN Uganda announced its clear intention to float 20% of its shares on the Uganda Security Exchange market for public investors across the East African Community.

The IPO values the company at UGX 4.5 trillion ($1.2 billlion), and it’s expected to double the value of the Uganda Securities Exchange. 

MTN Uganda becomes the fourth telco in the region after Safaricom, Vodacom Tanzania and MTN Rwanda to list its shares. 

MTN Uganda started in 1998 and has grown to become the largest Telco in the country with over 14 million subscribers and counting with a commanding 59 per cent market share. 

This IPO has been driven mainly by regulatory changes rather than business impetus but it will give the East African public a chance to invest in one of the dominant companies in the Ugandan economy, and in a sector that is still growing.

Since this IPO was announced, there has been some intrigue and misinformation spread by numerous parties intentionally and un-intentionally. The best way to counter this is to provide the facts and help investors decide if their hard earned money will have a safe and profitable home in MTN Uganda.

The MoneyInAfrica team does by posing questions about MTN Uganda that will give you the facts about it's operational and financial fundamentals, and also a quick FAQs of the IPO process.

1. What is the business model of MTN Uganda?

MTN Uganda has been in Uganda since 1998, and over that time it has focussed on three key areas:

• Voice/SMS
• Data
• Fintech / Digital e.g. Mobile Money (MoMo), payments solutions (MoPay and MoKash)

Data and Fintech/Mobile money services are growing fast with forecasts that they will exceed Voice & SMS in a few years. This would give MTN more resilient revenues and larger profits.

At the moment mobile penetration in Uganda is only 68% with MTN having the largest network, there is space for growth but it is the harder one to attain especially in more rural areas. 

2. Who runs MTN Uganda?

Once you invest your money in MTN Uganda, the Board of Directors and senior management  will be the people in charge of ensuring that your investment is fruitful.

The Board of Directors and Senior Management make the decisions that shape the future of the company and therefore your investment. 

The Board is led by largest individual shareholder, Ugandan businessman Charles Mbire. As would be expected for a South African firm, half of the board is from there. The Board is quite new with only the CEO and Chairman having served over 3 years.

The CEO is a Belgian nuclear physicist who previously led MTN Ivory Coast. He leads a diverse team with a large number of local executive talent and foreign hires.

3. Who owns MTN Uganda?

When you buy shares, you will become a one of the company's shareholders. As a shareholder you have a right to make decisions about the company including who sits on the Board of Directors. 

The actions of shareholders are the reason why share prices go up and down, irrespective of how the business performs therefore knowing them is key.

MTN Uganda is issuing 20% of shares to the public but MTN Group will ultimately remain the majority shareholder. 

The second largest shareholder will most likely remain chairman, Charles Mbire.

4. How much money does MTN Uganda make?

Investing is usually done to make money, and only companies that themselves make money can make you money. 

Sales/Revenues: In 2020, MTN made USD $508m which accounts for the 1.3% of Uganda's GDP. Revenues have grown at a paltry 5.86% which is not outstanding but at the same pace as the wider economy.

Profits: In 2020, MTN Uganda generated profits of US $87.09m; and has been profitable over the last five years with profits rising faster than revenues at an average of 25.32% year on year. 

Profit Margins: MTN Uganda has become a more profitable company over the last 5 years with margins doubling to 17%. This has been driven by move to better margin products like Data and Mobile Money

5. Will MTN Uganda make me money?

The assumption is that you would make an investment in MTN Uganda for profit.

The best measures we use to see if a company has a track record of making money is looking at the movement in share price (for capital gains) and dividends (for income).

Due to this being a newly listed company there is no share price but we can look at Return on Equity (ROE), which you can use to compare to other investments ROI, and we can look at dividend payout to existing shareholders. 

Return on Equity: ROE shows how much profit is made for every shilling invested by the shareholder. Over the last 4 years, ROE has been over 40%, this is a lot better than returns on bonds (10-15%). Only a part of this profit will be returned as dividends, the rest will be reinvested to increase shareholder value in the business. This ROE is similar to regional peers except Vodacom Tanzania which is struggling to maintain profitability

Dividends: The best way for a investor to get cash in their pocket is through dividends. MTN Uganda has paid out about 40%-60% of profits as dividends - which is the lowest among regional peers. Despite this low payout ratio, the dividend yield (dividends per share) as of last week remains competitive among listed regional peers excluding the unique case of Vodacom Tanzania that is undergoing a "shakedown" by the authorities.

6. Is MTN Uganda financially stable?

The two things that can bring any company to its knees however good its business or products - is too much debt or lack of cash. 

Debt: Debt levels for MTN Uganda have fallen over the last five years but they remain just under 3 times shareholder value. In the region, among listed peers, only MTN Rwanda is more indebted with debt almost 5 times shareholder value.

Cashflow: MTN Uganda has continuously been able to generate more cash through its operations than reported profits except in 2016. This is a positive sign that the company is generating more cash year on year.

7. Is MTN Uganda management team increasing the company's value?

The responsibility of the management team is to  "sweat" the assets of the business - make as much profit using the assets available, and sustainably increase the value of your stake in the company.

Return on Assets: This is a good measure of how well the management is "sweating" the assets. In 2020, 1/- of profit was produced for every 8/- of assets - rate of 11.65%. Regionally this rate is only exceeded by Kenyan giant Safaricom with 29.78%

Book Value: This is the difference between the assets of the company and its debt/liabilities- the bigger this the more valuable the company is on book. 

Bonus: What is the value of  MTN Uganda?

MTN Uganda is valuing its shares at UGX 200 but what is their "true" value? Like most things, it depends on who you ask;

Investment Bankers: They would value the share at UGX 294 with a range of 235 - 310. This price they would expect another company to pay if they wanted to buy up the entire MTN Uganda. 

Value Investors: They would value the share at UGX 281 with a range of 224 -295. This price is based on the predicted cashflows of the business, and uses a similar model to the one recommended by Warren Buffett.

Similar Companies: This would value the share at UGX 230 with a range of 184 -242.This price is based on how much investors are paying for other similar companies in the region.

Accountants: They would value the share at UGX 32 which is the book value. This is a very conservative valuation because it does not consider the value of the brand, IP and technology.

Quick Facts about IPO process