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

MultiChoice (MCG) is a premier entertainment company in Africa and one of the fastest-growing pay-TV broadcast providers globally, boasting 21.1 million subscribers across 50 countries. The share, originally spun off from Naspers, began trading independently on the JSE on February 27, 2019. Its revenue model, primarily based on recurring debit orders, makes it an attractive investment, particularly due to its diverse customer base and minimal working capital requirements, as it operates primarily as a service company without the need for large inventory stocks.

While the potential for pay-TV growth in Africa is significant, it faces potential disruption from the rise of 5G internet access and free online content platforms. Regulatory changes proposed by the Independent Communications Authority of South Africa (Icasa) to foster competition, particularly in sports broadcasting—a key area of strength for MultiChoice—could affect the company's ability to secure exclusive sports contracts.

The COVID-19 pandemic provided a temporary boost to the home entertainment industry, benefiting MultiChoice. On March 2, 2023, the company enhanced its Showmax service through a partnership with Sky News and NBC Universal, aiming to dominate the African market. However, financial results for the six months ending September 30, 2023, showed a slight decline in revenue by 1% and a 5% decrease in HEPS. During this period, the company’s 90-day active subscriber base slightly contracted by 2% to 21.7 million, although the Rest of Africa segment saw a 1% increase to 13.0 million subscribers.

A notable development in 2024 involved Canal+, which increased its stake in MultiChoice to 35.01%, triggering a mandatory offer of R105 per share, which MultiChoice deemed too low. Subsequent offers saw Canal+'s stake increase to 42.47% by May 3, 2024. The share price, which had been declining since March 6, 2023, rebounded significantly after December 19, 2023, when it crossed the 65-day exponential moving average at 7440c, eventually climbing to 11973c.

Given these dynamics, MultiChoice stands as a robust blue-chip stock, albeit facing competitive pressures and potential regulatory changes that could impact its market dominance and pricing strategies.