Amidst the turbulent winds buffeting South Africa’s communication sector, the beacon of resilience shines brightly in the form of MTN Group Limited (JSE: MTN). This telecommunications giant has been hard at work, investing diligently to fortify its network against the challenges posed by load shedding. The result has been a remarkable 15% boost in network availability, safeguarding seamless operations during power blackouts. However, even with this commendable progress, the company faces formidable headwinds. Despite a promising interim earnings report, MTN has seen its share price dip by nearly 20% in the last three months, a testament to the scale of challenges it confronts.
The company recently revealed an R4.5Bn investment into its network to keep its customers connected during power outages. They have deployed over 20,000 batteries, 5,000 rectifiers, and 900 diesel generators across its domestic sites. These investments reflect the ongoing challenge that load shedding poses on the company’s bottom line, which suffered a 0.5pp contraction in its EBITDA margin to 43.6%, while its profit before tax declined by 1.4% to R18.31Bn.
Despite this, the company reported a 7.1% increase in headline earnings per share (HEPS) at 542c, while its revenue advanced 16.1% to R113.20Bn. Data revenue was up 16.5%, while its fintech revenue expanded by 21.4%. MTN also recently agreed to sell a minority stake in its mobile money arm to Mastercard in an attempt to grow its African fintech business. Half-year subscribers also increased by 3.6% to 291.7M, while management backed its medium-term guidance for at least mid-teens group service revenue growth in the medium term. The company’s shares soared after the earnings report, but the market soon retraced the gains, with the macroeconomic environment still posing challenges to MTN’s operations.
Technical
On the 1D chart, multiple failures to move above R144.03 have triggered the downside momentum, forming a falling wedge. With the price currently relying on support at R109.42, a breakout to the upside is possible, with the RSI confirming the presence of oversold conditions in the market.
A breakout above R112.34 could trigger the upside reversal, with the 25-SMA (green line) potentially resisting the sustainability of the break. However, a new uptrend could emerge if the price moves above R120.16, resulting in a retest of the 61.8% Fibonacci golden ratio at R121.51. The 50-SMA (blue line) could be another crucial resistance to the upside at R124.15, but confirmation of a sustainable trend could occur if the price continues toward R125.36 and R132.37.
However, if resistance at R112.34 prevents the wedge breakout to the upside, the current trend could continue, leaving support at R109.42 as the focal point in the upcoming sessions. If the price moves below this level, the wedge could fall away for a continuation of the downtrend toward R105.77.
Summary
Despite revealing an improvement in its network availability, MTN faces numerous headwinds posed by the challenging business environment in the South African economy. Load shedding is chipping away at its bottom line, contributing to a large share price depreciation over the last quarter. As we advance, the R109.42 support level could be crucial, where a breakout above R112.34 could catalyse a new uptrend to reverse the recent losses.
Sources: Koyfin, Tradingview, News24, MTN Group Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
