MTN, the dominant mobile network operator in Uganda for the last 20 years is offering up a fraction of its shares to the public in an initial public offering requiring a minimum investment of UGX 100,000. MTN has made it so easy to invest in its IPO, you can dial *165*65# follow a few steps and buy shares in under 30 seconds. The offer closes on November 22, 2021, and will officially be available to buy and sell from December 6, 2021, on the Uganda Securities Exchange. The MTN IPO has generated plenty of polarizing debate, as it should. Some sections of the public are saying it is such a great opportunity to invest your savings while another section says over their dead bodies.

As a general principle, if you earn income, regularly or not, you should strive to save in the same frequency. If you earn daily, weekly, monthly, or quarterly, it is prudent to save some of that income in those same frequencies to meet your future financial goals such as retirement, child’s education, or building a house. Saving is a necessary but not sufficient condition to building wealth and meeting your future financial goals. If you are lucky enough to establish a regular savings habit; congratulations! But your work is not done yet. You still need to invest your savings nearly in the same frequency otherwise the value of your savings will be eroded over time by bank charges and/or inflation.

The MTN IPO presents an opportunity to invest some of your savings, but first; let us examine the return opportunity and risks in turn.

The Opportunity

• Dominant market player: nearly everyone who owns a small business would want to be in a position in which their stall dominates their corner of the market. If you achieve this feat, you could, in theory, absent local regulation, exert control over prices and therefore the profits you make. Does owning a piece of a dominant player in the telecom and mobile money industry make any economic sense?
• Diverse revenue streams: MTN generates most of its revenue from three lines of business: voice, data, and mobile money. Voice is the biggest contributor to revenue, but growth has stalled although the margins are healthy. According to the prospectus, the data penetration in Uganda is still low and the company views this as a huge growth opportunity. The mobile money platform possibly presents the largest growth opportunity since it is ubiquitous and is increasingly being leveraged to provide more sophistical financial services beyond the original peer-to-peer payments. Will revenues from these lines of businesses grow over time?
• Growing population: Uganda has upwards of 45 million people and the population is growing at roughly 2.5%. These people will need to call each other, access the internet, and will probably use mobile money with a lot more intensity over the next decade. Will a company that has served a small population in the past and generated mind-blowing revenues, as a result, have any chance of serving a larger population and still be as profitable?

The Risks

• Growth is restricted by geography: MTN Uganda is a franchise of MTN Group and therefore cannot grow by going after new markets in other countries. This is the same problem franchise businesses such as Stanbic Uganda face. They have to figure out how to grow their revenue within a limited geographical area. Question: do you think owning a company serving a population of 45m people is too small?
• Corporate governance: MTN Uganda, nearly since its inception has had the same Chairman who has been an excellent steward in the initial 23 years. We are buying into a future that is likely to be different from the last two decades. Is this the best board to see us through the next decade?
• Political and regulatory risk: MTN has particularly suffered a spectacular public embarrassment when a number of their key officials were arbitrarily and unceremoniously bundled out of the country without any clear explanation from the authorities. Question: do you think MTN will find a way to operate and have better protection from such arbitrary treatment now that it will be operating as a public company owned by thousands of Ugandans?

Recommendation

First, there is no truly risk-free investment. Investment involves weighing up the opportunity for returns against the risk you need to undertake to earn them and then making a rational economic decision if you can. Owning a piece MTN still makes economic sense on balance.

To invest, you take the savings that are already safe in your pocket or bank, (assuming they are safe in any of those places) and deploy them into an asset e.g., land, shares, fixed deposit, and so on (literally taking risk) in the hope of being reward with a decent return at the end of your investment period. There are no guaranteed returns for any asset. The act of buying shares in the MTN IPO is no different from the investment decisions we frequently make.

Should you invest in the MTN IPO? Absolutely! But do not bet the entire farm on it. Allocate a small amount if you have not already. If you have, allocate a bit more if you can afford it. Personally, and for our clients at XENO, a shareholding in MTN will form part of our investment portfolio but it will not be “The Portfolio”.

Declaration: As is customary for me every month for the last 16 years, I have invested some of my savings in the financial markets, this month it just happens to be MTN. That was not the case last month, and it is unlikely to be the case next month, but I will still invest, and you should too.