• Monday, May 27, 2024
businessday logo

BusinessDay

MTN-Nigerian analyst visit – history (almost) repeats itself

businessday-icon

Our two-day visit to Nigeria reflected not only on a more competitive landscape than two or three years ago, but also a regulatory landscape that is today perhaps less consultative and engaging than two years ago. As such, we believe MTN as the leading mobile network operator (MNO) is getting its (un)fair share of attention, and the most recent determination of market dominance in voice and jointly in wholesale/leased lines creates, in our view, a fair amount of uncertainty and hence our belief that now predicting the outcome of retail voice tariffs is perhaps premature. We expect a series of engagements between MTN Nigeria and the NCC to “plot the way forward” and we look forward to a resolution – flat rates (on-net tariffs = off-net tariffs) are not uncommon in the marketplace and, in our view, not a negative outcome (85 percent of MTN’s traffic is on-net in any case).

Furthermore, we believe the progressive improvement in quality of service is the single biggest challenge facing the telecoms industry. Although MTN expects a slowdown in capex in FY14E, we maintain our view that the level of investment around $1bn per annum would need to be sustained to meet if not exceed quality of service KPIs – it appears if voice usage is “managed” by MTN not to have a repeat of the scenario in August, September and October 2012, when effective tariffs declined by 50 percent and traffic grew by 78 percent in two weeks causing significant congestion of the network.

In terms of voice revenue, it appears if the average daily revenue is back to the levels of April/May 2012, driven by increase in usage (AMOU was 90min in 1Q13 vs 61min in 1H12), and strong subscriber growth in 1Q13. Our question whether the EBITDA margin followed a similar trend was answered vaguely – for now we maintain the modelling of FY13E EBITDA margin around 57 percent – medium to longer-term we have modelled for a level around 55 percent.

Data revenue growth is robust – over 60 percent YoY in LC and growing smartphone base. It would appear if Etisalat has the most aggressive data offering in the market, not really a surprise having leapfrogged 2G/2.5G/3G into 3.5G and having a full IP-based network.

MTN Nigeria’s balance sheet and capacity for debt is a major strength of the business, and we believe despite declining EBITDA margin and significant capex (capex/revenue was 30 percent in 1Q13) that MTN Nigeria would be able to sustain a high level of dividend payment to shareholders.

Net-net: We believe the company’s leadership position in voice is as strong as ever, with strong net additions in 1Q13. However, it appears if the company is the victim of its own success, and market position in voice (49 percent subscriber market share, 55 percent traffic market share) getting the attention of the regulator which, as the custodian for responsible and fair competition, is not likely to give MTN the benefit of superior execution and effective use of capital.

For now, the share at a December 2013 P/E of 15.4x (Vodacom’s December 2013 P/E is 12.2x), and yesterday’s close at ZAR185.90, above our TP, supports our HOLD rating.

 

JOHAN SNYMANSA/SSA Telecoms, SA Electronics & Technology analyst.