DStv owner in tremendous trouble

MultiChoice, which owns DStv, Supersport, Showmax, and Kingmakers, is in serious trouble and had to start selling the family silver to get money to fund its operations.

Last week, MultiChoice released its annual financial results for the year ended 31 March 2024, which prominent analysts described as awful and scary.

MultiChoice revealed that its loss for the year increased from R2.9 billion to R4.1 billion and had become technically insolvent.

The company also suffered a 9% decline in active subscribers, including a 13% decline in the Rest of Africa business and a 5% decline in South Africa.

This week, MultiChoice announced that it was selling 60% of its insurance business to Sanlam for R1.2 billion and a potential performance-based cash earn-out.

The cash earn-out will be measured on 31 December 2026 and can increase the price to a maximum consideration of R1.5 billion.

The money will be used within the MultiChoice group for working capital purposes. Simply put, MultiChoice needs the money to fund its operations.

MultiChoice tried to put a positive spin on the sale. However, it is clear that it is in financial trouble and needs cash fast.

Wayne McCurrie from FNB Wealth and Investments told Business Day TV that MultiChoice’s latest results were truly awful. “When I looked at it again, I realised it was terrible,” he said.

The only reason the share price did not plummet is that Canal+ offered to buy all of the outstanding MultiChoice shares at R125 each. The deal will close on 25 April 2025.

Canal+ already owns well above 40% of MultiChoice and continues to increase its shareholding through the open market.

Many MultiChoice shareholders may hold on to their shares, thinking there is a guaranteed R125 payday in ten months.

However, McCurrie warned that the acquisition agreement with Canal+ may have an exceptional circumstances clause, which could scupper the deal.

“You sincerely hope and pray there are no exceptional circumstances clause in the acquisition agreement with Canal+,” he said.

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

Therefore, it is not certain that the deal will go through. This poses a significant downside risk to current shareholders.

Wayne McCurrie of FNB Wealth and Investments

Analysts warned that should the deal fall through, the MultiChoice share price is expected to plummet.

Shane Watkins from All Weather Capital expects the share price to drop to below R60 if the deal does not happen.

“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.

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

McCurrie is even more bearish, saying the share can go to R40 or even R30 if there is no Canal+ deal.

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

McCurrie, Watkins, and David Shapiro from Sasfin Securities advised shareholders to ‘take their money and run’.

Shapiro explained that there are many opportunities in the South African market, which had a good run in recent weeks.

He said selling MultiChoice at R100 gives investors an opportunity to find value and growth in other companies.

“We are going into a very strong market. Don’t lose your flexibility by trying to hold on for R125 per share,” Shapiro said.

He added that MultiChoice’s decision to sell a majority stake in its insurance business to raise cash shows the company’s problems.

“This deal shows just how short on money MultiChoice is, having to sell a stake to prop up working capital,” he said.

“The numbers which came out of MultiChoice are quite scary. Take the money and run.”