MTN Nigeria and Airtel Africa are good defensive stocks amid the gloom caused by the coronavirus pandemic that is ravaging the economy and causing selloff in the equities market.
Defensive stocks are hot cake because their revenue and profits are less sensitive to the well-being of the overall economy.
“They are a good buy because they pay good dividend over a period of time,” said Wale Agbeyangi, group managing director of Cordros Capital Limited.
Analysts expect better numbers from the telecom companies in the months ahead as data usage will surge among populace because Nigerians will make use of their smartphones to browse more while they stay safe at home.
Recent data on key industry fundamentals published by the Nigerian Communications Commission (NCC) showed that the total number of broadband subscriptions grew 1.8 percent month on month (m/m) and 19.0 percent year on year (y/y) to 73.5 million.
Furthermore, broadband penetration expanded to 38.49 percent in January 2020 from 37.80 percent in December 2019 and 32.34 percent in January 2019.
In a related development, the Nigerian Bureau of Statistics published data on active voice subscriptions within the country for fourth quarter (Q4) 2019 which showed a sturdy 6.9 percent (y/y) increase to 184.7 million subscriptions from 172.8 million subscriptions in Q4 2018.
MTN Nigeria share price closed at N90 as of 2:00pm in Lagos, its prelisting price, from an all-time high of N141 on August 30 2019. It listed on the Nigerian Stock Exchange last year to become the second largest company by market cap.
Airtel Africa closed at N298, which compares with an all-time high of N350 on September 20 2019; it trades at 4.03 times earnings.
These companies have the ammunition to overcome the headwinds as evidenced in a robust cash flow position.
The combined free cash flow of MTN Nigeria and Airtel Nigeria hit N518.76 billion in 2019, a 32.26 percent increase from the N390.26 billion figure for 2018.
Investors pay attention to the free cash-flow because it shows them the extent to which a firm has the financial impetus to settle outstanding debt, fund future expansion plans and pay future dividend.
These firms are generating enough extra to cash to continue achieving growth as average combined free cash-flow to sales ratio increased to 28.56 percent in December 2019 from 23.60 percent in December 2018.
“These firms are illiquid and very few people own their stocks. When there is a crisis like the one we have now, the liquid ones are likely to see pressure,” said Paul Ozum, a stock broker.
Ozum said Aritel has secondary listing so the volume traded is very low and that MTN Nigeria is 80 percent owned by foreign investors and local investors are not ready to sell.
Nigeria’s key telecommunications companies have invested heavily in internet infrastructure in a bid to improve 4GLTE coverage across the country.
“Increased competitions among the providers have forced bundle prices lower, making internet usage very attractive to the average Nigerian,” said analysts at CSL Stockbrokers Limited.
“In addition, increasing smartphone penetration, increasing digitisation of the Nigerian economy and a fledgling social media culture are some among many factors driving internet penetration within the country,” said the analysts.
MTN Nigeria’s subscriber base was up 6.1 million to 63.4 million in the period under review while average data users grew by 6.5 million to 25.52 million in December 2019.
Airtel Africa’s customer base grew by 9.40 percent to 107 million in the period under review while voice, data, and mobile money increased by 3.90 percent, 39 percent, and 40.40 percent, respectively, in currency terms.
BALA AUGIE
