The Huge Group has settled a legal dispute with MTN Service Provider (MTNSP), agreeing to pay the cellular company R10 million, an amount it will settle by issuing shares worth a total of R20 million as it also wants to expand aggressively.
The dispute between it and MTNSP, which dates back to when MTN bought iTalk in 2009, hinged on a dispute over whether MTNSP could take over contracts with Huge without Huge agreeing to the contract being moved to MTNSA. It was set to go to court later this month.
MTNSP went to court to get Huge to abide by a settlement agreement, and was seeking R30 million or - in the alternative - R56 million, through the South Gauteng High Court. Huge, however, had argued it was still owed airtime value from the iTalk deal.
Finally sorted
Huge CEO James Herbst says the matter has now been finalised, with Huge agreeing to pay MTN R10 million. The company is set to issue 20 million new shares to raise R20 million, half of which will be used to pay MTN, and the balance to fund networking equipment so Huge can grow "aggressively".
Huge Telecom, which measures its sales activity by the number of telephone lines that it sells and installs, has grown its base from 20 000 to 25 400 between the end of February and the end of July. This represents growth of 65%, and it has also increased its average contract length from two years to 29 months.
Herbst explains the company is spending between R2 million and R3 million to boost the number of lines it connects each month, and the additional R10 million raised - at 100c a share - will be pumped into network equipment so it can accelerate its connections.
However, the rights issue will result in stock dilution of about 18%, which will drop earnings and headline earnings per share by around 18.6%. Huge, which has improved its gross margins from 19.2% in the year to February to 55% currently, is set to report its interims in mid-October.
"Management believes that, for each additional rand of revenue generated, the business has the ability to deliver four times the operating profit generated by the additional rand of revenue," it says.
Herbst notes the group has enough support from shareholders to raise R10 million, and expects to get in irrevocable votes this week. "We'll make sure it happens." Huge stock last traded at R1.45.
Huge is also soon set to announce a debt-funding deal after seeing "significant" interest from debt providers. "This funding will be applied to fund the significant growth that Huge is experiencing."
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