Prominent investment firm Sanlam Private Wealth has announced that it has sold MultiChoice out of most of its clients’ portfolios due to the relatively high risk and low potential upside.
According to a statement published on its website, five years ago, the firm saw potential upside in the streaming company but the landscape has now changed substantially. MultiChoice shares by Sanlam Private Wealth estimation, are now trading at close to fair value and in that direction, Sanlam has exited the stock in most of its client portfolios.
Sanlam Private Wealth is an organisation that helps individuals and companies create investment portfolios. In addition to investments, some of its other offerings include a comprehensive range of specialised services, including wealth management, fiduciary and tax, equity-backed finance, derivatives trading and stockbroking.
In February 2019, pay-TV operator MultiChoice Group was listed as a separate entity on the Johannesburg Stock Exchange (JSE). Five years down the line, the steaming company has faced several challenges impacting the investment case for the group.
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Some of these issues were huge fines in some African countries, regulatory changes, a ratings downgrade, existential competitive threats from global streaming services such as Netflix and Amazon Prime Video, and now a potential buyout. Amid these challenges, the MultiChoice share price has not performed excellently.
With all those issues in place, Sanlam Private Wealth has announced a discontinuation of its share offerings for customers.
More on the MultiChoice development
According to investment analyst at Sanlam Private Wealth, Dumisani Chiume who spoke to MyBroadband, the investment firm has taken a fresh look at the MultiChoice group’s prospects, and it’s not a business it would like to own over the long term.
“We decided to wait for the long-expected buyout offer before exiting at a price close to our own fair value. In our view, on a risk-adjusted basis, there are currently more compelling stocks to buy into in our relatively cheap South African market.”
Further explaining Sanlam’s position, Chiume said that just five years ago, the African streaming giant had substantial competitive advantages like content quality, leading local offerings and sports broadcasting rights, over rivals.
Unfortunately, Multichoice is starting to lose these advantages.
“DStv, MultiChoice’s direct broadcast satellite television service that operates in 54 countries across sub-Saharan Africa, enjoys a majority market share mainly due to its sports broadcasting rights. These are key for subscriber retention.” Chiume said.
The drama surrounding the airing of the recently concluded African Cup of Nations (AFCON) and the decline in data costs are examples of how rival companies continue to give MultiChoice competitive worries in the industry.
“And the rival offerings are alluring — affordable mobile-only plans from Netflix and others have made it much more difficult for MultiChoice to retain subscribers,” Chiume said.
Can a buyout save DSTV’s parent body?
Earlier in February, we reported that Canal Plus, a top shareholder in MultiChoice offered 105 rand ($5.55) per share for every of the company’s shares it does not already own. This buyout offer was speculated to help the company which continues to struggle in an unstable environment
However, the MultiChoice board later announced that the Canal Plus offer (worth around 31.7 billion rand) significantly undervalues the company. In a statement, the DSTV parent company said a recently conducted exercise valued the group significantly above the offer price, excluding any potential synergies which may arise from the proposed deal.
Read here:
Multichoice rejects Canal+ $1.7 billion takeover bid citing undervaluation
Although the board said it was open to all means of maximising shareholder value, it stated that it had conveyed to Canal Plus that the proposed price did not provide a basis for further engagement. Adding that the company however remains open to engage with any party in respect of any offer which is for a fair price.
It remains to be seen whether a buyout could help turn MultiChoice’s fortunes around.
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