Our opinion on the current state of MCG

MultiChoice Group (MCG) is a premier entertainment enterprise in Africa, standing out as one of the world's most rapidly expanding pay-TV broadcast providers. With a subscriber base reaching 21.1 million across 50 countries, MultiChoice boasts a significant footprint. The distribution of its 90-day subscriber base is notably divided, with 42% (8.9 million) in South Africa and the remaining 58% (12.2 million) across the rest of Africa. The company's journey to becoming an independent entity, following its spin-off from Naspers, was marked by its listing on the Johannesburg Stock Exchange (JSE) on 27th February 2019.

MultiChoice represents an almost ideal investment for private investors, primarily due to its annuity-based income model, facilitated through debit orders among a highly diversified client base. As a service-centric company, it operates with minimal working capital requirements, negating the need for substantial inventory holdings. Additionally, the company's workforce is largely skilled, mitigating some of the labor-related challenges, despite previous union issues.

The pay-TV market in Africa, where MultiChoice is a dominant player, shows significant potential. However, future growth may face headwinds from advancements in 5G internet technology and the availability of free online content platforms. Regulatory changes are also on the horizon, with the Independent Communications Authority of South Africa (Icasa) considering revisions to pay-TV market dominance rules. Such changes could particularly affect MultiChoice's stronghold on exclusive sports broadcasting rights, which has been a major draw for its service.

The COVID-19 pandemic had a temporary positive impact on the home entertainment sector, benefiting companies like MultiChoice. In an effort to enhance its offerings, MultiChoice entered into agreements with Sky News and NBC Universal on 2nd March 2023 to bolster its Showmax service, aiming to cement its leadership in Africa's entertainment space.

Despite these strategic moves, the company reported a slight dip in revenue by 1% and a 5% decrease in headline earnings per share (HEPS) for the six months ending 30th September 2023. The decline in the overall 90-day active subscriber base by 2% to 21.7 million was reported, alongside a growth in the Rest of Africa subscriber base. The South African segment of the business was particularly challenged by extensive power outages during the reporting period.

Recently, the French media conglomerate Canal+ increased its stake in MultiChoice to 35.01%, triggering a mandatory takeover offer at R105 per share, which was deemed insufficient by MultiChoice. Following a ruling by the Takeover Regulation Panel (TRP) on 28th February 2024, Canal+ revised its offer to R125 per share on 6th March 2024. Subsequently, on 7th April 2024, a cooperation agreement was announced between MultiChoice and Canal+, outlining a collaborative approach to the takeover process.

From a technical analysis perspective, MultiChoice's shares experienced a decline leading up to 6th March 2023. However, a notable turnaround occurred on 19th December 2023 when the share price crossed the 65-day exponential moving average at 7440c, leading to a significant increase to 11793c. This suggests a potential bullish outlook for investors, considering the recent developments and strategic partnerships, although the company continues to navigate challenges within the highly competitive and rapidly evolving pay-TV market.