Back in December, I introduced Fools to South African cell-phone leader MTN (OTCBB: MTNOY.PK). At the time, the shares would have cost you a bit below $11 apiece. Since then, shares have bounced up roughly 27% to $13.50. Despite the price spike after MTN's latest preliminary earnings report for the second half of 2006, the company is still only trading at a little over 13 times trailing earnings.
The company turned in strong results for the year, with EBITDA rising 53% on a 73% jump in subscribers. EBITDA margins also rose, up 100 basis points to 43.4%. All that led to an after-tax profit increase of more than 70%. Not too shabby.
A big reason for the jump in MTN's results was closing the acquisition of Dubai-based cell phone operator Investcom in July 2006. Without Investcom, however, revenue growth would still have been 32%. The Southern African division was the strongest, with West Africa close behind and North Africa/the Middle East a distant third. Margins are lower in the Southern Africa division thanks to higher market saturation and competition with Vodacom, a joint venture of state-owned Telkom (NYSE:TKG) and Vodafone (NYSE:VOD).
The Investcom purchase and a larger stake in MTN Uganda and MTN Nigeria used up almost $4 billion in cash and increased MTN's shares outstanding by almost 10%. But the new acquisitions were immediately accretive to EBITDA and cash flow.
MTN Group President and CEO Phuthuma Nhleko noted that, "The continued increase in EBITDA margin is a positive outcome of the operational efficiency initiatives we have undertaken in the last two years. The solid growth of the Investcom operations in the last six months is consistent with our strategy of applying operational efficiencies in low-penetration, high-growth markets." It seems MTN is investing for growth and succeeding with every new report.
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Fool contributor Dale Baker is a private client portfolio manager and a former U.S. diplomat with extensive experience in Europe and Africa. He welcomes your comments and questions. Dale owns shares in MTN for himself and his clients. Vodafone is an Inside Value pick. The Fool has a disclosure policy.
