Profit ratio

MTN wants to buy Telkom. Here’s how they compare and why MTN can afford them.

The MTN logo obscuring the Telkom logo

News analysis

  • MTN wants to buy Telkom.
  • The two listed companies simultaneously disclosed “early-stage” discussions on Friday morning.
  • MTN is about twice the size of Telkom, measured in South African subscribers – and about 15 times the size of Telkom measured in market capitalization.
  • MTN says it can pay in a combination of stock and cash. Relative corporate profit margins help show why this is possible.
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MTN plans to buy Telkom.

On Friday morning, the two JSE-listed companies issued simultaneous and largely identical notices to shareholders regarding the “early stage” discussions. They provided almost no details other than that MTN was interested in a full takeover of Telkom, and that it was considering either an equity deal or a combination of cash and equity.

The market seemed enamored with the idea, despite the complexity and dangers of such a massive merger. Hours after the warnings were issued, MTN shares were up around 4% – and Telkom shares were up just under 30%.

See also | After years of flirting, Telkom and MTN announcing they were in merger talks was almost inevitable

Here’s how MTN and Telkom compare, and why relative newcomer MTN can afford to buy Telkom.


MTN: 28 years old

Telkom (mobile): 28 years old (sort of)

Counting from when the companies were founded in their current form, Telkom is three years older than MTN, having been established in 1991, while MTN started in 1994.

But when it comes to mobile phone operations, which is about all that matters, they started at the same time, in 1994, with Telkom playing a big role in the creation of Vodacom.

What is now Telkom’s mobile division, having started life as 8ta, was launched in 2010, after Telkom sold Vodacom in 2008. Thanks to aggressive pricingBacked by Telkom’s global financial strength and legacy network, its second mobile business has grown rapidly.

Telkom’s legacy network, however, goes back much further than that. The company is the result of a split from the Department of Posts and Telecommunications, whose history could be traced back to the introduction of the first telephones in South Africa in 1878.

Mobile phone subscribers

MTN: 35 million (in South Africa)

Telephone : 17 million

Both companies recently released their numbers through the end of March, which makes for a fairly straight-forward comparison, though how the telcos measure active subscribers may differ.

As a rough guide, however, you can consider MTN to be twice the size of Telkom in terms of cell phone subscribers.

This does not include MTN’s operations elsewhere on the continent, which take it to over 276 million, or Telkom’s other business areas, including the roughly half a million subscribers it has in fixed-line services. broadband.

Market capitalisation

MTN: 254 billion rand

Telephone : 17 billion rand

MTN is a relative newcomer to Telkom, whose roots go back to the first phones used in South Africa. But MTN is roughly 15 times larger than Telkom, in part because investors are much more confident in its ability to continue growing.

MTN trades at a price-to-earnings ratio (a measure of how much buyers are willing to pay for a stock relative to how much the company is currently earning) above 13, while Telkom’s P:E ratio is below 6.

Average revenue per customer (arpu)

MTN: R93 (in South Africa)

Telephone : R90

Telecom companies use the average amount of money they earn from each customer as a key indicator.

These numbers aren’t too different between the two companies, if you exclude MTN’s other operations; elsewhere in Africa, this amounts to between a little and a lot less per customer.

The numbers increase a lot if you only look at their postpaid customers; MTN earns around R268 for each contracted subscriber, while Telkom earns R212, a difference of around 20%. On prepaid services, which the majority of their two customers use, the difference is closer to 5%, at R70 for MTN and R66 for Telkom.

Share performance over the past 3 years

MTN: up 27%

Tekom: down 62%

It depends on exactly where you draw the line, but regardless of your timeframe, Telkom has lost value much faster than MTN – and over longer periods of time has lost value as MTN has grown .

The complication is market volatility in 2022. Measured year-to-date, MTN shares are down around 20%, while Telkom is down around 40%. Over three years, the divergence is clearer, and over five years very sharply: Telkom shares have lost roughly half their value over the past half-decade, while MTN is up 10%.

Profit margin

MTN: 39.9% (in South Africa)

Telephone : 27.9%

The differences between MTN and Telkom are clearly reflected in their reported margins, measured on the basis of earnings before interest, taxes, depreciation and amortization (arpu).

MTN is much more profitable than Telkom, which ranges from a higher share price to easier and cheaper access to debt of all kinds.

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