Johannesburg, South Africa – MultiChoice, the owner of DStv, Supersport, Showmax, and Kingmakers, is grappling with severe financial difficulties, leading the company to divest significant assets to secure operational funds. The entertainment giant, widely recognized for its dominance in the African media landscape, is now confronting a stark reality of dwindling revenues and rising losses.
Last week, MultiChoice disclosed its annual financial results for the fiscal year ending 31 March 2024, painting a bleak picture that alarmed industry analysts. The company reported a staggering increase in losses, escalating from R2.9 billion to R4.1 billion, thrusting it into a state of technical insolvency. Moreover, MultiChoice experienced a 9% decline in active subscribers, with notable reductions of 13% in its Rest of Africa operations and 5% in South Africa.
In a bid to mitigate its financial woes, MultiChoice announced the sale of a 60% stake in its insurance division to Sanlam for R1.2 billion, with the potential for a performance-based earn-out that could elevate the total consideration to R1.5 billion by 31 December 2026. The funds are earmarked for working capital purposes, underscoring the urgency of the company's cash flow needs.
Despite efforts to present the sale in a positive light, the underlying message is clear: MultiChoice is in dire need of liquidity. Prominent financial analyst Wayne McCurrie from FNB Wealth and Investments described the company's latest financial results as "truly awful." Speaking to Business Day TV, McCurrie emphasized the severity of the situation, noting, "When I looked at it again, I realized it was terrible."
One of the few factors preventing a collapse in MultiChoice's share price is Canal+'s offer to acquire all outstanding MultiChoice shares at R125 each, with the transaction expected to close by 25 April 2025. Canal+, which already holds over 40% of MultiChoice, has been steadily increasing its stake through open market purchases.
However, McCurrie cautioned that the acquisition agreement might include an exceptional circumstances clause that could jeopardize the deal. "You sincerely hope and pray there are no exceptional circumstances clause in the acquisition agreement with Canal+," he remarked.
Additionally, the proposed acquisition faces regulatory scrutiny from the Independent Communications Authority of South Africa (ICASA) and the Competition Commission, adding further uncertainty to the transaction's completion. Should the deal fall through, analysts predict a significant downside risk for MultiChoice shareholders.
Shane Watkins of All Weather Capital forecasts that MultiChoice's share price could plunge to below R60 if the acquisition does not materialize. "Two years ago, the expectation was that MultiChoice would achieve earnings per share of R10 to R12. A year ago, it dropped to R8 per share," Watkins explained. "Instead, MultiChoice reported a R9 loss per share, and the company is in a negative equity position."
Watkins also expressed concerns about the accuracy of the reported financials, suggesting that "there are lots of profits in the numbers which are artificial." He highlighted the deferral of Showmax costs and reduced decoder subsidies as indicators of potential financial manipulation.
David Shapiro from Sasfin Securities echoed these sentiments, advising shareholders to divest their holdings. "There are many opportunities in the South African market, which had a good run in recent weeks," Shapiro said. "Selling MultiChoice at R100 gives investors an opportunity to find value and growth in other companies."
The sale of a majority stake in its insurance business is a stark indicator of MultiChoice's precarious financial position. As Shapiro noted, "This deal shows just how short on money MultiChoice is, having to sell a stake to prop up working capital."
With analysts like McCurrie predicting that MultiChoice's shares could tumble to R40 or even R30 in the absence of the Canal+ deal, the consensus is clear: shareholders should take the money and run.
The road ahead for MultiChoice is fraught with challenges. Unless the Canal+ acquisition proceeds or the company significantly improves its operations, MultiChoice may be forced to raise capital through a rights issue. For now, the message to investors is unambiguous: consider your exit strategies carefully.
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