Dialing Out Of Africa: Long MTN Group

Investing in the Emerging African Telecommunications Market

In 1998, fewer than 4 million Africans used a mobile phone. Today that number is over 500 million¹ and has room to grow. According to the BBC, mobile phone usage rates in Africa hover around 65% versus roughly 85% globally. Internet access poses a similar opportunity: fewer than 10% of Africans have internet access, lagging both the world average of 30% and the developing- country average of 21%.² As investors, we see an opportunity in the African mobile telecommunications marketplace.

Beyond Phone Calls:

Mobile phone growth could ripple positively throughout the African economy, particularly with today's internet-capable smartphones. For example, much of Africa's rural population has little to no access to brick-and-mortar banks- the equivalent of $2 billion is kept under mattresses in South Africa alone, according to mobile payment firm, Wizzit.³ Transferring these assets to banks and giving Africans the ability to control them with mobile devices and smart phones could have a significant economic impact. In fact, an 2005 analysis by the London Business School found that an additional ten mobile phones per 100 people in a developing country boosts GDP by half of a percent.⁴

Value Investment Opportunities:

At the Mundoval Fund, we seek to buy cash-earning businesses at a good price. In the African mobile telecommunications market, we believe MTN Group (MTNOY.PK) offers a solid value for the long-term investor. MTN Group provides both mobile and fixed telecom and broadband services to much of the growing African and the Middle Eastern markets. Further, MTN Group has generated positive free cash flow for the past 10 years and boasts a healthy 4.2% dividend yield (by comparison, the 10-year treasury yield was 1.56% on May 31).

Owning a cash-generative business in an expanding marketplace is a combination we believe can contribute positively to the Mundoval Fund over the long term.

Sources

^1."Africa's Mobile Economic Revolution," by Killian Fox, The Guardian, July 2011.

2. "Africa's Mobile Phone Industry Booming," BBC News Africa, November 2009.

3."Mobile Africa Report 2011: Regional Hubs of Excellence and Innovation," by Dr. Madanmohan Rao, MobileMonday.

4. "The Impact of Telecoms on Economic Growth in Developing Countries," by Leonard Waverman et. al., London Business School, 2005.

Disclosure: I am long MTNOY.PK.

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