Our opinion on the current state of MCG

MultiChoice Group (MCG), a prominent entertainment company in Africa, has established itself as one of the fastest-growing pay-TV broadcast providers globally, boasting 21.1 million subscribers across 50 countries. With its subscriber base divided between South Africa (42% or 8.9 million) and the rest of Africa (58% or 12.2 million), MultiChoice's business model is uniquely positioned to capitalize on the continent's growing demand for entertainment services. The company's separation from Naspers and its subsequent listing on the Johannesburg Stock Exchange (JSE) on 27th February 2019 marked a significant milestone in its journey towards independent operations.

MultiChoice's appeal to private investors is enhanced by its primarily annuity-based income, derived from a diverse and extensive subscriber base through regular debit orders. As a service company, it benefits from minimal working capital requirements, negating the need for large inventory stocks. Furthermore, its workforce composition mitigates the challenges associated with managing a large unskilled or semi-skilled labor force, although it has faced union issues in the past.

The potential for pay-TV growth in Africa is significant, yet it faces potential erosion from advancements in 5G internet access and the availability of free online content platforms. Regulatory changes, especially those proposed by the Independent Communications Authority of South Africa (Icasa) aimed at fostering competition within the pay-TV market, could impact MultiChoice's dominance, particularly in sports coverage—a key aspect of its appeal.

The COVID-19 pandemic underscored the resilience of the home entertainment industry, with lockdowns driving increased demand for such services. MultiChoice's strategic partnerships, including agreements with Sky News and NBC Universal to enhance its Showmax service, reflect its ambition to dominate the African market. However, the company has faced challenges, as evidenced by its latest financial results for the six months ending 30th September 2023, which showed a slight decrease in revenue and headline earnings per share (HEPS), alongside a contraction in its overall subscriber base. This was partly attributed to the effects of extensive loadshedding in South Africa.

Despite these hurdles, MultiChoice remains a solid blue-chip investment, even as it navigates the competitive landscape and explores alternative products for its subscribers. The recent development involving Canal+'s increased stake in MultiChoice, triggering a mandatory offer at R105 per share—which was subsequently rejected by the company as too low—highlights the ongoing corporate dynamics. The Takeover Regulation Panel's (TRP) ruling that Canal+ is obliged to make a mandatory offer to buy out the remaining shareholders further adds to the intrigue surrounding MultiChoice's future.

From a technical analysis perspective, MultiChoice's share price experienced a decline starting 6th March 2023. However, a significant turning point occurred on 19th December 2023, when the share price broke through the 65-day exponential moving average at 7440c, leading to a notable increase to 10900c. This movement suggests a positive momentum shift for MultiChoice's shares, indicating potential for continued growth and making it an attractive option for investors looking for opportunities in the entertainment and media sector.