Our opinion on the current state of MC-GROUP(MCG)

MultiChoice (MCG) is one of Africa's leading entertainment companies and one of the world's fastest-growing pay-TV broadcasters, with a subscriber base of 21.1 million across 50 countries. The 90-day active subscriber base is split between 8.9 million (42%) in South Africa and 12.2 million (58%) in the rest of Africa. MultiChoice was spun out of Naspers and listed on the JSE on February 27, 2019.

This company is close to an ideal investment due to its diversified client base and annuity income primarily generated via debit orders. As a service provider with minimal inventory requirements and a lean workforce, MultiChoice operates with minimal working capital needs. However, it faces competition from 5G internet access and free online streaming platforms. Icasa's (Independent Communications Authority of South Africa) regulatory changes to promote competition in the pay-TV market may affect MultiChoice's exclusive sports contracts, which have been a key differentiator.

In partnership with Sky News and NBC Universal, the company aims to expand the Showmax service to strengthen its market position in Africa. The home entertainment sector received a significant boost from COVID-19 lockdowns, but the company’s results for the six months ending September 30, 2023, showed revenue down by 1% and headline earnings per share (HEPS) down by 5%. MultiChoice attributed this decline to high levels of loadshedding that impacted the South African business.

On February 5, 2024, Canal+ increased its stake in MultiChoice to 35.01%, triggering a mandatory offer to buy out the remaining shareholders at R105 per share. MultiChoice rejected this offer as too low. The Takeover Regulation Panel (TRP) confirmed Canal+ was required to make an offer, which was subsequently raised to R125 per share. By April 24, 2024, Canal+ had acquired 41.6% of MultiChoice's issued shares. As of May 8, 2024, Canal+ increased its stake to 43.54%.

Technically, MultiChoice shares had been declining since March 6, 2023. A recommendation was made to wait for a break above the 65-day exponential moving average before purchasing. This happened on December 19, 2023, at 7,440 cents, and since then, the share price has risen to 11,950 cents.