Our opinion on the current state of MCG

MultiChoice (MCG) is a leading entertainment company in Africa and one of the fastest-growing pay-TV broadcast providers in the world with 21,1m subscribers in 50 countries. The company's 90-day subscriber base is split 42% (8,9m) in South Africa and 58% (12,2m) in the rest of Africa. The share was spun out of Naspers and separately listed on the JSE on 27th February 2019. This company is probably close to an ideal company for the private investor because its income is mostly annuity income, in the form of debit orders, with a very diverse client group. It has virtually no working capital because it is essentially a service company and does not need to carry large stocks. It also does not have a large unskilled or semi-skilled workforce, although it has had union problems in the past. The potential for pay-TV in Africa appears to be substantial but may be eroded by 5G internet access in the future and the existence of free online access through platforms. Icasa (Independent Communications Authority of SA), in its efforts to boost competition, is looking at changing the rules for dominance in the pay-TV market, which may impact on MultiChoice. This may include changing the rules for dominance in sports coverage which has been MultiChoice’s strongest appeal. This would impact on MultiChoice’s ability to negotiate exclusive sports contracts. Obviously, this company is in the home entertainment business which received a boost from the COVID19 lockdowns. On 2nd March 2023 the company announced that it had entered into an agreement with Sky News and NBC Universal to enhance the Showmax service and make it dominant in Africa. In its results for the six months to 30th September 2023 the company reported revenue down 1% and headline earnings per share (HEPS) down 5%. The company said, "...the group's overall 90-day active subscriber base contracted by 2% (0.4m) to 21.7m. The Rest of Africa base, accounting for 60% of linear customers, grew by 1% to 13.0m. The South African business had to contend with the effects of ongoing high levels of loadshedding as 43% of the days in the reporting period were impacted by stage 4 - 6 loadshedding". In our view, this is a solid blue-chip share which faces some problems with the alternative products available to its subscribers. On 4th July 2023 Business Day reported that Canal+ had increased its stake in MCG to 31,7% which might indicate a takeover. MCG shares fell on the news. Technically, the share has been falling since 6th March 2023. We recommend waiting for a break up through the 65-day exponential moving average before investigating further.

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Snapshot: 4/2024

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