High-growth in emerging markets; why MTN is hot property - 21-market footprint boasts 68 million subscribers

The Johannesburg-based Pan-African and Middle Eastern mobile group MTN has been the subject of feverish M&A speculation in the media over the last few weeks. India's Bharti has already held talks and this week another Indian mobile group, Reliance, also confirmed it has entered negotiations. A whole host of rival operators are also reportedly considering their options, which could spark a bidding war. MTN's market capitalisation is around US$38 billion but it is likely that a successful bidder will need to pay a significant premium on the market value. A merger with MTN as the dominant partner is also a possibility.

MTN's appeal is not hard to explain. Its footprint across 21 key growth markets in Africa and the Middle East is unique and it now boasts more than 68 million subscribers in total. It is registering at least double-digit year-on-year growth in all its markets and triple-digit growth in fast-emerging Middle Eastern markets such as Iran and Afghanistan. In some smaller markets - Swaziland and Rwanda, for example - it is the sole operator.

Nigeria is its largest market by subscribers. According to GSMA Intelligence data, MTN Nigeria is market leader in the country (ahead of Globacom and Celtel Nigeria) with a market share of around 35%. Like the majority of the markets where MTN operates, Nigerian market penetration is well below 50% (37%), suggesting MTN will be able to maintain strong growth in the short- to medium-term. In South Africa, MTN's second-largest market by subscribers, the operator trails Vodacom, which has a market share of around 56%. Here total market penetration is around 86% - more than double the African average (31%) - but MTN is still able to report double-digit year-on-year growth (16%).

However, it is MTN's strong footing in the Middle Eastern markets where growth is at its most rapid. MTN acquired a 49 percent stake in Irancell - its first venture outside Africa - in 2005, and the subsidiary has quickly grown to become MTN's third-largest market, reporting year-on-year growth of over 500%. Its acquisition the following year of Investcom saw it enter a further four markets outside of Africa: Cyprus, Syria, Yemen and Afghanistan.

The group's financials are also impressive. For the year-ending December 2007 the group reported 42% yearly growth in both revenues and earnings (EBITDA), reaching ZAR73.1 billion (US$9.6 billion) and ZAR31.8 billion (US$4.2 billion), respectively. Profit after tax grew 21.4% to ZAR13.6 billion (US$1.8 billion).

In 2008, MTN plans to keep aggressively deploying high-speed networks in key markets such as South Africa, Nigeria, Ghana and Syria. MTN is seeing opportunities in emerging markets to deliver high-speed services to mass markets as WCDMA and WCDMA/HSPA handset manufacturing costs continue to decline. These markets are highly competitive and high-speed networks are set to be a key differentiator. MTN's Capital Expenditure (Capex) in 2007 was ZAR15.3 billion (US$2 billion), representing 21% of revenue, compared to 19% of revenue in 2006.

Matt Ablott, Analyst, GSMA Intelligence:

The Johannesburg-based Pan-African and Middle Eastern mobile group MTN has been the subject of feverish M&A speculation in the media over the last few weeks. India's Bharti has already held talks and this week another Indian mobile group, Reliance, also confirmed it has entered negotiations. A whole host of rival operators are also reportedly considering their options, which could spark a bidding war. MTN's market capitalisation is around US$38 billion but it is likely that a successful bidder will need to pay a significant premium on the market value. A merger with MTN as the dominant partner is also a possibility.