Broadcast Media Africa has learnt that South Africa’s Sanlam Private Wealth has recently sold most of its clients’ portfolios that included MultiChoice due to the high risk and low potential upside they see in the company.
According to Sanlam investment analyst Dumisani Chiume, the company has re-evaluated the group’s prospects and has decided to wait for the long-expected buyout offer before exiting at a price close to their fair value. Chiume added that there are currently more compelling stocks to buy in the relatively cheap South African market.
Chiume further explained that MultiChoice, which operates DStv, has lost its substantial competitive advantages over its rivals, including its quality content, which includes sports broadcasting rights. He noted that DStv currently has a majority market share mainly due to its sports broadcasting rights, which are key for subscriber retention. However, he predicted that other players would likely start giving MultiChoice a run for its money in this arena.
In addition, other competitive advantages once held by MultiChoice have started to unravel more aggressively. For example, with data costs having substantially declined over the past decade, the cost of switching to competitor products is now far lower, and rival offerings are alluring. Moreover, MultiChoice appears to be allowing sole distributor agreements to lapse.
Despite offering excellent local content and having its Showmax streaming service, which should help it defend its market share, the competition limits the price MultiChoice can charge. Chiume also noted that pay TV and video streaming are not mutually exclusive, and the two mediums could coexist over the long term.
Chiume predicts that DStv would likely struggle to defend its profit pool or grow it realistically, regardless of whether Canal+’s acquisition of MultiChoice goes ahead.
South Africa faces high fixed costs of the business that impact profitability. Furthermore, constant load-shedding has led to subscriber losses, particularly in the Compact Plus and mid-range customer segments. Chiume also noted that the tough African macro environment in which MultiChoice operates has created a potential share price overhang impacting the long-term investment case for the group.
