Take your money and run

Shane Watkins from All Weather Capital warned that MultiChoice is only worth around R60 per share and that current shareholders should take their money and run.

Watkins is All Weather Capital’s chief investment officer and has extensive experience in asset management, corporate finance, and investment analytics.

He told Business Day TV that MultiChoice’s financial results for the year ended 31 March 2024 were truly appalling.

MultiChoice’s loss for the year increased from R2.9 billion to R4.1 billion, and it became technically insolvent.

“Two years ago, the expectation was that MultiChoice would achieve earnings per share of R10 to R12. A year ago, it dropped to R8 per share,” he said.

“Instead, MultiChoice reported a R9 loss per share, and the company is in a negative equity position.”

He added that the results might be even worse than the numbers suggest. “There are lots of profits in the numbers which are artificial.”

“MultiChoice pushed between R1 billion and R2 billion of Showmax costs to next year, and decoder subsidies are R2.2 billion less than last year,” he said.

The lower decoder subsidies are because MultiChoice pulled back on it. This is due to the poor trading conditions

There is also another R1.5 billion in once-off foreign exchange contract profits, which is unlikely to be repeated.

Watkins said unless it is bought by Canal+ or dramatically improves its operations, MultiChoice will need to raise capital through a rights issue.

Canal+ has offered MultiChoice shareholders R125 per share. Canal+ already owns well above 40% of MultiChoice and wants to buy the rest of the shares.

Although the deal is likely to go through, it is not certain. “There is a firm intention from Canal+, but it is not certain if there is a material adverse change clause in the agreement,” he said.

It also faced regulatory hurdles, including approval from the Independent Communications Authority of South Africa (ICASA) and the Competition Commission.

“It is never certain the deal will go through. It requires regulatory and government approval,” he said.

Should the deal fall through, the share price is expected to plummet to below the levels it was trading at before the deal was announced.

“If the deal does not go through, MultiChoice will plummet and be trading at below R60 per share,” Watkins said.

He commented on what current MultiChoice shareholders should do: “On the balance of probabilities, I will take my profits and run.”

Canal+ offer to MultiChoice shareholders

Earlier this month, Multichoice posted details about the mandatory offer by Canal+ to shareholders.

Canal+ made a cash offer to all Multichoice shareholders for R125.00 per share. It already owns 45.2% of MultiChoice.

The offer opened on Wednesday, 5 June 2024, and will remain open for at least 30 business days.

Multichoice shareholders who do not accept the Canal+ offer will remain shareholders once the offer is implemented.

However, if the offer is accepted by Multichoice shareholders holding at least 90% of shares, Canal+ has the right to invoke the provisions of section 124(1) of the Companies Act.

Section 124(1), known as compulsory acquisitions and squeeze-out, gives details on when a company has the right to buy remaining shares from shareholders.

Simply put, if Canal+’s offer is accepted by enough shareholders for it to own above 90% of Multichoice, it can buy the rest of the shares at the same price.

Should this happen, Canal+ can apply to terminate the listing of all Multichoice shares from the JSE’s main board and A2X, where it is listed.

If Section 124(1) of the Companies Act is not invoked, Multichoice will continue to be listed on the JSE and A2X.

Wayne McCurrie from FNB Wealth and Investments explained that this offer from Canal+ saved the MultiChoice share price.

“Even with their shocking results, the MultiChoice share price did not move much. This is because of the R125 offer from Canal+,” he said.

He agreed with Watkins that investors should sell their MultiChoice shares as holding on to them does not offer much upside.