MultiChoice CEO’s surprise comments about being technically insolvent

MultiChoice Group CEO Calvo Mawela said the company is not concerned about being technically insolvent and that it is part of the plan.

MultiChoice’s financial results for the year ended 31 March 2024 revealed it suffered a R4.1 billion loss and became technically insolvent.

The poor performance was partly due to a 9% decline in active subscribers, which included a 13% decline in the Rest of Africa business and a 5% decline in South Africa.

MultiChoice’s total assets declined from R47.6 billion to R43.9 billion, while liabilities increased to around R45 billion.

This leaves MultiChoice with a negative equity of R1.07 billion, which means it is technically insolvent.

Simply put, MultiChoice cannot settle all its liabilities if all its assets are liquidated. This is a dismal state for a company.

The financial results could have been even worse if it had not pushed between R1 billion and R2 billion of Showmax costs to next year and cut decoder subsidies by R2.2 billion.

The situation became so dire that MultiChoice is selling 60% of its insurance business to Sanlam for R1.2 billion to get working capital.

Despite these challenges, Mawela put on a brave face, saying they are comfortable with their financial situation, including being technically insolvent.

Mawela told MyBroadband MultiChoice has liabilities that they are accounting for, including “the put option that Comcast can do to us”.

He added that they have decided “to say the investment that we have made in the tech division, let’s write it off completely so that we can clean up everything that sits with us”.

That means the increased liabilities and technical insolvency “was a delivery strategy on our side”.

“To non-financial people, they will just see negative equity and get a shock,” Mawela told MyBroadband.

“But we have been in discussions with our lenders, and they are still comfortable with the underlying business,” he said.

“They will only get worried they see the cash being burned, but so far, so good.”

Analysts warn about MultiChoice’s financial position

While MultiChoice and its chief executive try to convince the market everything is fine, analysts and fund managers warn the company is in severe trouble.

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

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

However, there are concerns that the deal may not conclude because of a potential exceptional circumstances clause or regulatory hurdles.

Should the deal fall through, the MultiChoice share price is expected to plummet to its lowest level ever.

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

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

Such a rights issue will require shareholders to pump money into the company with the hope of a big performance improvement.

McCurrie, Watkins, and David Shapiro from Sasfin Securities advised MultiChoice 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 allows investors 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.

Many shareholders have followed their advice. The MultiChoice share price has declined by 14% since the end of April, which suggests a market selloff.