DStv owner in trouble

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Independent analyst Jimmy Moyaha said MultiChoice is facing significant challenges which can drive down the share price to R70 or even R60 per share.

Yesterday, MultiChoice’s share price plummeted 13% after JPMorgan downgraded the company from neutral to underweight with a price target of R80 per share.

An analyst note revealed that Nigerian naira weakness negatively affected JPMorgan’s revenue outlook for the broadcaster.

Other challenges highlighted include the significant investment in Showmax and the harmful effects of load-shedding on MultiChoice’s South African operations.

JPMorgan subsequently adjusted its revenue outlook for MultiChoice and said it expects trading losses in 2024 and 2025. It lowered its price target by 38% to R80 per share.

Speaking to Moneyweb’s Simon Brown, Moyaha said streaming services like Netflix, Amazon Prime Video, and Disney+ put pressure on MultiChoice to innovate.

He pointed to Amazon’s plan to launch its marketplace in South Africa, with Amazon’s Prime membership programme becoming available shortly afterwards.

Amazon Prime Video is bundled with Amazon Prime, offering unlimited streaming of movies and TV episodes, with the option to add video subscriptions to services like Showtime, A&E, and AMC.

When South Africans get access to Prime Video as part of their subscription, they may reconsider paying hundreds of rands for DStv.

“The competitiveness of MultiChoice’s DStv and Showmax price points and value propositions is increasingly questioned,” Moyaha said.

“Is their pricing on DStv bouquets even remotely relatable at this stage when compared with streaming services?”

With a DStv Premium subscription costing R879 per month, many people may opt for much cheaper options like Netflix or Amazon Prime.

Commenting on MultiChoice’s prospects, Moyaha said many things happening in the business are not making it attractive compared to its peers.

He added that a downgrade from JPMorgan in a difficult environment does not bode well for the company among institutional investors.

MultiChoice’s share price declined 46% since its high in March, raising questions about whether there is value in the stock at current levels.

“There will be value at certain price levels. However, whether it will be at R82, R70, or even R60 remains to be seen,” he said.

“I don’t think there will be a significant selloff beyond what we saw on Tuesday. We will likely see teetering around the current price at this point.”

Moyaha warned that MultiChoice’s share price could realistically decline to R70 and reach lows seen when the pandemic hit in 2020.

Independent analyst Jimmy Moyaha
Independent analyst Jimmy Moyaha

South Africans dumping expensive DStv packages

MultiChoice’s latest results revealed that South Africans continue to dump DStv Premium and Compact Plus packages in preference for more affordable services.

Higher interest rates, elevated inflation, high levels of unemployment, and load-shedding put pressure on people’s finances.

These factors negatively impacted the South African pay-TV subscriber base and activity levels, with a noticeable increase in churn when load-shedding reaches stage 4 and above.

Many South Africans dumped their DStv subscriptions, especially in the Premium and Mid-market segments.

DStv Premium subscriptions, which include Premium and Compact Plus packages, declined by 6% over the last year.

Mid-market subscriptions, which include Compact and Commercial packages, declined by 3% year-on-year. Many DStv subscribers also downgraded their packages.

The impact is clearly seen in DStv’s average revenue per user (ARPU), which declined from R269 to R256 over the last year.

MultiChoice felt this impact on its top and bottom line. Its South African revenue declined 2% to R35 billion due to a 3% decline in subscription revenues.

The image below shows the decline in DStv Premium and Mid-market subscribers and the lower ARPU.