MTN trading update is good!

This morning we received a nice looking trading update from MTN for the 6 month period ending June 2013.


"Shareholders are advised that MTN expects an increase of between 20% and 25% in headline earnings per share ("HEPS") for the six months ended 30 June 2013 when compared against the previously reported corresponding period."


The HEPS for the six month period are positively affected by foreign exchange gains of approximately R1.0 billion compared to foreign exchange losses of approximately R1.5 billion in the prior year related to some of the group's subsidiaries resulting in markedly lower net finance costs.


As you can see from the update, there were big currency swings, let's look at the past numbers in detail and see what we can decipher. Last year headline earnings for the 6 month period came in at R9.911bn. If you add the middle of the range 23% we should expect R12.19bn for the period. That gives us an increase of R2.28bn, R1bn of that as a result of the currency swing. If it weren't for the currency swing we would have seen earnings growth of 13% which is still very acceptable for a company of this size, especially when everyone was calling them ex-growth a few years ago. Maybe they are now ex ex-growth.

On a per share basis we saw 537c this time last year. With this release we should expect around 660c. The stock is trading at R187 as I write. If you annualise this number which is a fair to conservative assumption for MTN, the stock trades on 14 times this year's earnings. To put things into perspective, telecommunication companies in developed markets are trading on much higher valuations, probably because of their impressive dividend yields. These companies are spewing cash. What I am trying to say is that MTN is cheap in my opinion, especially when you look at the potential growth in the regions that they operate in. I guess that is why the stock would also afford a bit of a discount, those regions can be very risky.


And how do you analyze currency swings? Well these things happen, sometimes in your favour, sometimes not. Enjoy the benefits when they come around and hold tight when things go against you. It is the average growth over a long period of time, say 5 years, which is important. We will look at the stock in more detail when the results come out, probably later this month.