Analysts See 20% Upside as MTN Nigeria Valuation Hits N5trn
Anchored on the company’s large investment in network infrastructure and solid record growth in payment service banking earnings, analysts have raised MTN Nigeria’s key investors’ metrics for 2023.
Having inched upward to N245.5 per share last week in the local bourse, the Telco giant stock market valuation hits N4.997 trillion on 20.345 billion outstanding shares.
In its equity report on the company, CardinalStone analysts raised the 12-month target price (TP) to N294.50 from N259.89, implying a buy recommendation per a capital appreciation prospect of 20.2%.
In 2022, the telecommunication company’s revenue and profitability spiked strongly as it maintained industry’s leadership in the sector. MTN Nigerian grew service revenue by 21.5% to N2.0 trillion while its earnings before interest, tax, depreciation and amortisation grew by 22.0% to N1.1 trillion.
Its pretax profit was 22.3% in 2022, rising above the comparable year record level. In a regulatory filing, MTN Nigeria revealed a plan to issue bonus shares to its shareholders coupled with incentive shares offered to Nigerian investors that position in its public offer.
In the world of data, MTN Nigeria Plc has proven to be the captain in the market with its ballooning earnings performance over the years. Despite a tough business environment, telecom services ranked higher in demand, outperforming consumer goods companies.
According to the financial statement submitted to the Nigerian Exchange, Ticker: MTNN extended an uptrend in active subscribers aided by the aggressive expansion of network coverage and service infrastructure.
The number of customers that subscribed to MTN Nigeria data service increased 15.3% year on year, which translated to 5.2 million addition in absolute terms. Also, voice users jumped 10.5%, which is 7.2 million additions when compared to the previous year.
In its equity report, CardinalStone said for the financial year 2023, the company would likely benefit from its impressive 4G and 5G network coverages and their pass-through to subscriber growth.
Projecting into the year, CardinalStone analysts said the telecom company’s revenue could rise by 19.1% year on year to N2.4 trillion. Looking further, analysts are expecting the company’s earnings per share (EPS) and total dividend per share at N20.70 and N17.60, apiece.
According to CardinalStone, since its MTN Nigeria obtained payment service bank (PSB) licensure in the second quarter of the financial year 2022, it has made significant inroads into the Nigerian financial services ecosystem.
In 2o22, MTN Nigeria registered an additional 5.5 million MoMo wallets within six months. Analysts said this growth in fintech subscribership occasioned a 2.1x year-on-year revenue increase.
It is noted that compared with the prior super agent license, the PSB allows MTN to open wallets for customers independently without having to work with and share related income with deposit money banks.
With its 224,000 agents, CardinalStone said MTNN is now focused on capturing first-rate value from the significant unbanked population, estimated at about 38 million Nigerians, to increase the uptake of its wallet services in 2023 and beyond.
“Though contribution to the company’s overall revenue remains low at 4.2% in 2022, the strong growth in the fintech segment inspires optimism for medium to long term growth prospects of the company given Nigeria’s favourable demography”.
For MTN Nigeria, the multi-asset investment firm project a 15.4% increase in capital expenditure (CAPEX) to N392.3 billion in 2023 and a further 17.8% rise to N463.6 billion in 2024.
Analysts said voice and data growth remain robust. Voice revenue will likely be supported by network expansion across an increasing population in 2023, though its implied growth is expected to remain soft on the impact of rotation to internet-based OTT services.
Elsewhere, analysts said they expect the data segment to remain the key fulcrum of growth, aided by continued network expansion and rising data usage per subscriber. Overall, Cardinalstone is expecting voice and data revenue growth of 4.5% and 39.6% in the financial year 2023.
While its business outlook appears positive, there is cost side to consider amidst rising headline inflation in Nigeria, which analysts expect to impact the telecom operator’s cost profile.
Based on expected inflation of over 18.0%, Naira weakness, and aggressive rollouts of service infrastructure sites, analysts said earnings before interest tax depreciation and amortization (EBITDA) margin may contract by 1.1% to 52.1% in the current year.
Noting that about 41% of MTN Nigeria’s operating expenses components is exposed to naira fluctuations, management has guided that a 10% devaluation could shrink margins by 100-130bps.
Analysts said finance cost pressures will likely worsen, given the additional N15.5 billion annual coupons payable on the N115.0 billion debt issued in the third quarter of 2022 at 13.5%.
Despite the implications of these cost pressures on margins, MTNN is likely to maintain a longstanding record of healthy after-tax profit growth, up 17.4% year on year in 2023 on a strong pass-through from the top line.
“We expect MTNN to record a dividend payout ratio of 85.0% in 2023 versus 87.8% in 2022, implying a total dividend of N17.60 per share”, a multi-asset investment firm Cardinalstone said in its equity report.
Also, analysts said they raise the 12-month target price (TP) to N294.50 from N259.89, implying a BUY recommendation per a capital appreciation prospect of 20.2%.
