MTN stock set to rally on perceived scarcity 

A record upfront demand for the shares of MTN Nigeria Communications plc from potential investors ahead of its listing on the Nigerian Stock Exchange (NSE) today will cause the price to maintain upward trajectory in the near-to-medium term.

The shares of MTN Nigeria Communications plc will today be listed by introduction on the Premium Board of the Nigerian Stock Exchange. The listing is anticipated to lift the overall market capitalisation on the NSE and may trigger further primary market activities in the telecom space.

A CEO of one of Nigeria’s leading stock-broking firm told BusinessDay that “almost all shareholders of MTN are not willing to sell”, adding that “even those that will sell are going to offer the units that cannot meet the high demand”.

“The demand will automatically lead to a rally for the stocks. I can tell you now that I have over 1 billion units of demand for MTN stocks but I am yet to see a shareholder that is willing to sell,” the CEO said.

MTN listing by introduction will add N1.83 trillion ($6 billion) worth of equities to the Nigerian Bourse, thereby boosting the value of listed stocks by 17 percent to N12.52 trillion, from N10.68 trillion. The telco eyes debt and equity capital raise after listing.

MTN Nigeria has historically aimed to maximise dividends and in the medium term, it targets a dividend pay-out ratio of at least 80 percent of its distributable net income subject to board discretion, according to the telco in its first-quarter (Q1) analyst’s presentation.

In his response to request from one of the prospective investors in the shares of MTN Nigeria Communications plc, a broker from one the country’s investment house said, “I doubt if it will be available tomorrow (that is today) but I can try and put you on the queue for next week. The truth is none of the shareholders is willing to sell. Hopefully they sell but I am sure it will be a small unit.”

A market analyst who asked not to be quoted said the share price will to continue to rally once it is listed on NSE.

“For the short term, I can assure you that it can be up at least 30 percent and it will be hard for potential investors to tap from the goldmine, owing to the fact that the shareholders will want to cash out and as such they will hold on to it for a while and with the continuous demand for the stocks, its price will maintain upward trajectory,” the Lagos-based market analyst said.

Ayo Akinwunmi, head of research at FSDH Merchant Bank, said the demand for MTN stock may lead to a decline in the share prices of other large capitalised stocks.

“MTN is one of the biggest companies that are coming to the market, so there will be high demand for the stocks, and there will be portfolio adjustment. The high demand for MTN may lead to decline in the share price of other growth stocks on the bourse, which will be a good opportunity for them (investors) to buy such stocks,” Akinwunmi said.

On the Premium Board, MTN joins other companies like Access Bank plc, Dangote Cement plc, FBN Holdings plc, Lafarge Africa plc, Seplat Development Company plc, United Bank for Africa plc, and Zenith Bank plc.

Most analysts believe investors will be looking to the company’s free float as this will go a long way in determining the level of activity at the secondary market, going forward.

Free float represents the portion of shares of a company that are in the hands of public investors as opposed to locked-in stock held by promoters or controlling-interest investors.

Companies listed on the Premium Board are required to have a free float of a minimum of 20 percent of issued and fully paid-up shares or the value of its free float is equal to or above N40 billion on the date the Exchange receives the Issuer’s application to list.

Nigerian investors own 19.4 percent of MTN Nigeria, while 78.8 percent is owned by South Africa’s MTN Group.

The listing by introduction means that the shares of existing MTN Nigeria shareholders will be listed without an additional public sale of shares. From this point, all MTN Nigeria shareholders will be free to trade their shares on the NSE.

MTN will be listing its 20.35 billion units at N90 per share; thereafter, the company will also address capital market stakeholders with a Facts Behind the Listing presentation at 8am today.

The company’s valuation works out to an enterprise value that is 5 times of Earnings Before Interest Tax, Depreciation and Amortisation (EBITDA) and 9 times of earnings. That compares to the frontier peer average of 11 times EBITDA and 20 times earnings.

These numbers suggest the company is undervalued. When BusinessDay adjusted the company’s valuation to reflect that of its frontier market peers, MTN should be pricing around N150 per share. That means the stock trades at a discount slightly over 60 percent.

The company’s return on equity (ROE) and return on assets (ROA) of 90 percent and 17 percent, respectively, comfortably sit among the best in the market and these should enable it to command a premium when it eventually starts trading on the Exchange.

MTN Nigeria recently announced its earnings for the first quarter ended March 31, 2019 recording 13.4 percent growth in service revenue.

This was driven by a 12.7 percent and 32.4 percent rise in voice and data revenue, respectively, and the addition of 2.1 million active mobile subscribers to the network.

The company announced EBITDA of N150.4 billion and expanded EBITDA margins to 53.3 percent (44.2 percent, on an IAS 17 basis) due to growth in revenue and effective cost management.

IHEANYI NWACHUKWU, LOLADE AKINMURELE & ENDURANCE OKAFOR