MTN Nigeria surmounts macroeconomic headwinds as profit margins surge

…..Fourth largest Nigerian company by profit

MTN Nigeria

MTN Nigeria Plc has surmounted the tempest brought on by poor regulatory environment and economic lethargy as it recorded a stellar performance.

This means the telecommunications giant has the financial strength to reward shareholders and investors in form of share appreciation and steady dividend payments as evidenced by strong cash from operating activities and robust earnings.

Companies are going through trying times as decrepit infrastructure, double taxation, and low consumer purchasing power continues to undermine growth.

The country hasn’t recovered from the precipitous drop in crude oil price of mid 2014 that stoked a severe dollar scarcity that saw it slip into its first recession in 25 years.

While the introduction of a new foreign exchange by the central bank and rebound in crude oil price and output helped the country exist a recession in the last quarter of 2017, over half of its 200 million live below $1.98 dollar a day.

Nigeria is ranked 146 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.

Lack of policy direction on the part of the federal government has led to investors dumping Naira assets, hence, resulting in outflow of investment.

Amid these monument challenges, like a flower that blooms under the sun, MTN Nigeria continues to thrive as evidenced in a solid working capital position, steady growth in revenue and profit, and reduction in debt.

For instance, the telecommunication giants’ sales increased by 17.11 percent to N1.03 trillion in December 2018 from N887.17 billion the previous year.

A breakdown of top lines shows income from Airtime and Subscriptions were up 21.52 percent to N676.38 billion in December 2018 as against N556.57 billion the previous year. Income from data was up 41.41 percent to N165.17 billion as at December 2017.

MTN Nigeria is cost leader and its ability to curtail costs is responsible for improved margins and profitability. It successfully reduced commission-to-sales ratio, due to shift to digital airtime sales.

Also, operating expenses (direct and indirect cost) ratio fell to 75.33 percent in December 2108 from 78.01 percent the previous year: this means the company has spent less on costs to generate each unit of revenue.

Total operating expenses were up 13.07 percent to N782.62 billion in the period under review, slightly higher than April inflation figure.

The telecoms giant is leveraging on the proliferation of smartphone device and the country’s growing population as profit after tax increased by 79.69 percent to N145.68 billion in December 2018 from N81.01 billion as at December 2017.

It is generating more in earnings before interest, taxes, depreciation, and amortization, as a percentage of revenue, which means it has a strong operating efficiency.

Earnings before interest and taxation (EBIT) moved by 35.38 percent to N266.13 billion in the period under review from N195.92 billion as at December 2017.

NTN Nigeria has utilized the resources of shareholders in generating higher profit while it is has also been able to turn top line (sales) impressive performance into bottom line (profit) growth.

Net margin increased to 14.02 percent in the period under review from 9.13 percent the previous year. EBIT margins, otherwise known as operating profit margin increased to 25.61 percent in December 2018 from 22.08 percent the previous year.

The telecoms giant has an excellent deleveraging strategy as the proportion of debt in its capital structure has waned, while earnings are enough to pay interest expense.

Debt to equity ratio (D/E) fell to 122.84 percent in December 2018 from 225.80 percent the previous year while total debt (short term and long term) has reduced by 31.31 percent to N175.30 billion in the period under review from N254.82 billion the previous year.

Times coverage ratio stood at 3.95 times operating profit, which means operating profit can over finance costs three times; the ratio is higher the 1.50 times international bench mark.

If MTN Nigeria were part of the NSE 30- the lists of most liquid firms- its N145 billion net income would be the fourth largest in the country.

The company has spent N201.01 billion on capital expenditure as at December 2019, and it intends to spend more on its future expansion plans.

The telecoms giants’ ongoing capex plan is focused on the network superficially; 4G rollout in major cities across the country to improve network quality. 3G densification and expansion countrywide to improve availability, reliability, data speed and overall user experience.

MTN remains market leader in Nigeria

MTNN is undoubtedly the market leader in the Nigerian telecommunications market.

According to Nigerian Communications Commission (NCC), the firm has the largest market share by subscriber base, with c.37 percent market share as at March 2019 while Globacom (27 percent), Airtel (26 percent) and 9mobile (10 percent) follow in that order. MTNN contributes c.50 percent to the total revenue generated in the industry.

The telecommunications sector which contributes c.9.9 percent to GDP and recorded a strong growth of 11.3 percent in FY 2018 still holds growth prospects given Nigeria’s large population (197 million) and expected growth (adding 5 million a year until 2022).

Analysts are of the view that MTN, given its market leading presence and superior brand name is well positioned to benefit from the growth in the sector.

‚Äú We see strong growth potential for MTN considering mobile penetration rate of 81 percent (as at Q1√≠2019) which could help in driving voice (accounting), for 74.9 percent of revenue as of Q1 2019) and data revenue (accounting for 16.6% of revenue as of Q1 2019),‚ÄĚ said analysts at CSL Stock Broker Ltd.

MTN’s Undervalued shares are attractive compared to African peers

MTN Nigeria’s shares are attractive and undervalued compared to peers in Sub-Saharan African after it received regulatory approval from the Securities (SEC) and NSE to list 20.3 billion units of shares at a price of N90 per share.

Based on a listing price of N90, and a market capitalization of N2.0 trillion and an EBIDTA of N150 billion, the telecoms giant’s listing implied forward EV/EBITDA prints at 3.4x, while forward P/E ratio for prints at 9.5x based on market capitalisation of N1.8 trillion and annualised net income of N193.8 billion, according to data gathered by analysts at CSL Stock Brokers Limited.

That compares with African peer average (which includes MTN Group, Vodacom, MTN Ghana, Safaricom, Sonatel and TIM Participacoes forward EV/EBITDA prints at 5.6x and while forward P/E ratio prints at 12.4x.



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