MTN, Airtel Africa earn 35% of NSE-30 profits as at Q3

For investors seeking where to park their funds amid falling stock prices and fixed income yields, the telecommunications stocks could be a good bet.

This is because MTN Nigeria (MTNN) Plc and Airtel Africa Plc- the largest players in the terrain- are taking advantage a youthful population and the growing adoption of mobile internet services to underpin earnings.

Little wonder they have earned BUY ratings from different investment houses, an attestation of consistent earnings growth and solid balance sheet.

The combined net income of the two major industry players stood at N230.40 billion as at September 2019, which is 34.84 percent of the total profit (N661.12 billion) of Nigerian Stock Exchange (NSE) 30 firms.

The NSE 30 Index is the list of the most capitalized and liquid firms on the bourse, but the two telecoms giants are not on it.

Analysts say the two bellwether firms will soon be included on the list, given their robust market value.

MTNN, the most capitalized firm in Nigeria, had net income of N148.32 billion as at September 2019, making it the most profitable company in the country.

MTN and Airtel Africa have cumulative revenue of N1.44 trillion, which is about 1.23 percent of the country’s gross domestic product (GDP).

While other sectors are reeling from a harsh and unpredictable macroeconomic environment, the telecommunications industry is a calm eye in the mist of the storm as continues to thrive.

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The positive momentum in Nigeria’s telecommunications sector continued into the month of October as the latest data released by the Nigerian Communications Commission (NCC) for the month of October showed that, the number of mobile and Internet subscribers grew to 180 million and 123.6 million in October from 179.2 million and 123.2 million in September respectively.

Notably, broadband subscription recorded the highest expansion, growing 7.0 percent month on month and 27.0 percent year on year (y/y) to 72.3 million subscriptions in October.

The strong growth in broadband subscriptions pushed broadband penetration to an all-time high of 37.8 percent, the highest level since January 2017 when Nigeria Communications Commission (NCC) began compiling the data.

In terms of the positioning of the industry players based on subscriber base, MTN remained the biggest player with a subscriber base of 65.8 million (market share; 36.6 percent) trailed by GLO NG with 50.3 million  subscribers (27.9 percent) then Airtel Nigeria with 49.1 million  subscribers (27.3 percent).

On the other hand, 9mobile sustained its seventh consecutive month of losing subscribers with its subscriber base now at 14.8 million (8.2 percent) from 16.4 million (9.4 percent) at the start of the year.

The industry players are investing aggressively in network infrastructure to accelerate the 3G/4G bandwidth coverage.

Airtel Africa in partnership with Intercellular Nigeria recently acquired additional 10 MHZ spectrum in the 900 MHZ band for N25.20 billion.

Between them, MTNN and Airtel Africa have a combined N694 billion in cash flow from operating activities, as they continue to increase capital expenditure spend in a cash crunch economy.

Analysts at Chapel Hill Denham Limited have retained their BUY rating on MTNN, thanks to 4G expansion and improvement in network service quality.

MTNN currently trades on FY-20E EBITDA and EPS multiples of 4.9x and 11.5x compared to its SSA/EM peers average of 6.8x and 15.9x respectively.

Analysts at Chapel Hill Denham expects MTNN to take advantage of the low interest rate environment to raise short term debt, considering that the interest rate on its short term borrowings are currently in the 13.3-14.1 percent range, based on 3-month NIBOR.

MTNN closed trading at a share price of N115.3 per share on Friday, 13 December 2019 and market cap of N2.347 trillion, Airtel Africa share price closed at N298.80 valuing it at N1.12 trillion.