FNB analysts Peet Serfontein and Jalpa Bhoolia suggested MultiChoice as a long trade with a price target of R153, giving investors a significant upside.
MultiChoice is well-known in South Africa for its DStv and Showmax products, but this is only part of its entertainment portfolio.
Apart from stakes in MultiChoice South Africa and MultiChoice Africa, the group also owns the betting service KingMakers and the technology platform Irdeto.
MultiChoice Group’s three content pillars – international, local, and sport – continue to hold a competitive advantage even as competition continues to rise.
FNB said MultiChoice is one of the world’s fastest-growing pay-TV and video entertainment operators.
It provides a competitive content offering and has good pay-TV subscriber growth potential in Africa.
There is also the potential of an offer from Groupe Canal+ to buy MultiChoice and create an African pay-TV powerhouse.
Canal+ gradually increased its stake in MultiChoice – from 6.5% in October 2020 to its current level of over 26% – by buying shares in the open market.
The buying spree by Canal+ sparked speculation that a bigger deal may be on the cards as it makes sense for both companies.
Even without a buyout offer, Serfontein and Bhoolia argue that MultiChoice offers a good opportunity for investors.
They expect strong headline earnings per share (HEPS) growth over the next three years and good dividend increases.
Serfontein and Bhoolia added that a technical analysis also points to an attractive investment opportunity.
“According to the RSI (Relative Strength Index), the share will be overbought at R175, making our profit target of R153 realistic,” they said.
“Still, the trade idea is regarded as a counter-trend trade since the price remains below its 200-day simple moving average of R122.”
The FNB analysts proposed a long trade with an upside target price of R153 with a stop loss of R111.
They further suggested a low capital-at-risk allocation to this trade.