MTN’s share price slumped about 7% in early trade on Wednesday after the mobile network operator warned it would report its first full-year loss.

The group blamed the multibillion-rand fine imposed by Nigerian legislators for flouting customer registration rules, losses from joint ventures and associates and poor performance from its two biggest operations in Nigeria and SA.

MTN’s share price recovered to close 1.7% down at R115.75.

Mergence Investment Managers portfolio manager Peter Takaendesa said the market reaction suggested the trading update was marginally lower than market expectations.

MTN expects to report a loss in basic headline earnings per share and headline earnings per share for the 2016 financial year. In the 2015 financial year, MTN reported headline earnings per share of R12.04 and earnings per share of R7.46.

The Nigerian regulatory fine is expected to have an estimated negative effect of 474c on earnings per share and headline earnings per share.

MTN Nigeria’s first-half performance was affected by the disconnection of 4.5-million subscribers in February 2016 in compliance with the law, the withdrawal of regulatory services that was resolved in May 2016, the weak economy and the depreciation of the naira against the US dollar.

However, most of the items that have affected the results were nonrecurring, said Takaendesa. The Nigeria fine was fully provided for in 2016 earnings as a largely noncash charge to the income statement and would not affect earnings going forward, but MTN would pay cash installments over the next three years.

“In a nutshell, the fine will no longer have a material impact on earnings, but will affect the cash flow of the Nigeria operations,” said Takaendesa.

He said MTN had faced a rare combination of cyclical and significant regulatory headwinds in 2016. “We, therefore, expect earnings to recover strongly over the next three years, helped by easing cyclical pressures as well as a stronger new management team,” he said.

The disappointing results from MTN SA in the first six months were largely due to poor postpaid performance as a result of handset shortages and poor network quality in some areas.

MTN has since restructured its operations and brought in new management to turn around the business.

Matthew Auerbach, of Capricorn Fund Managers, said MTN could be setting a clean base off which the new management could work. "Without the details, one can speculate that certain provisions or impairments may have been taken," he said.

Weaker economic growth in a number of African countries would remain a challenge in the near term but the longer-term prospects of the African telecoms market remained attractive, said Takaendesa.

Bruce Main, a money manager at Ivy Asset Management, told Bloomberg there “have been systemic management issues for the last two or three years that have resulted in MTN reacting to external shocks and putting out fires.”

The company should be “paying attention to regions where they are actually profitable and so they have lost some market share,” he said. (Business Day SA)

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