CardinalStone initiates coverage on MTN Nigeria, foresees robust cash growth

Cardinalstone ( has initiated coverage on MTN Nigeria Communications Plc (MTNN) ( with a 12-month target price and projected market capitalization of N148.54 and N3.02 trillion, respectively.

On Tuesday, MTN Nigeria market cap was N2.523 trillion, as share price closed at N124 as against previous trading day at N125.55.

The investment firm in a note said its 12-month target price implies a total return of 22.1%, dividend yield of 5.1% and capital appreciation at 17.0% as it recommend BUY on the stock.

Cardinalstone analysts’ said they foresee robust growth in MTNN’s cash balance in the next five years.

To the analysts, MTNN is likely to report strong growth in operating cash flow at annual average growth rate of 18.1% over the next five years.

This, they said is aided by relatively muted increase in investing cash outflows moving at an annual average growth rate of 8.6% over the same horizon.

Analysts at the firm believe the company’s reported cash balance can improve to about N103 billion by financial year 2023 as estimated from N53 billion in 2018.

Healthy growth in operating cash flow could support sustained dividend pay-outs, the mean pay-out ratio of 71.4% over our forecast horizon and debt repayments without significantly reducing capital expenditure intensity.

MTNN also boasts annualized 9 months of financial year 2019 return on equity (ROE) and return on assets (ROA) of 218.1% and 12.8%, respectively.

This is relative to averages of 24.4% and 9.5% for Bloomberg’s emerging and frontier market peers. However, the company’s valuation upside is largely capped by a high asset beta of 1.81 (using Bloomberg’s adjusted beta) that is justified by its relatively high risk.

“To this point, we note that the company’s upside from capital appreciation could easily increase to 45.0% (vs. our 16.9% projection) if the business becomes just as risky as the market”, Cardinalstone reckoned.

On the Nigerian mobile broadband front, 44.0% of subscribers are on 3G while a meagre 5.0% are currently on 4G technology, as compared to over 18.0% 4G penetration in South Africa and 16.0% in Angola.

Cardinalstone said it envisages higher revenue realization in the data market in the coming years, in line with mobile broadband penetration forecast of 55.0% by 2025 according to Jumia mobile report 2019, with 70.0% having 3G connectivity and the balance 30.0% accounting for subscribers in the 4G space.


In line with this, the company aims to increase data contribution to revenue to 52.0% in financial year 2023 as estimated from 26.0% in 2018 by investing in and growing 2G, 3G and 4G LTE capacity, with a focus on also improving rural coverage.

Notably, MTNN has already launched its rural telephony project in Q4’18 in order to provide coverage to over 2,000 villages using innovative low-cost coverage, revenue sharing model with third-party partners.

MTN has controlling share of the telephony market. As at September 2019, Nigeria’s GSM telephony subscribers totalled 178.9 million, with MTNN accounting for 36.5% or 65.3 million subscribers.

The company was closely followed by Globacom with 49.2 million subscribers and Airtel 48.9 million subscribers, both of which account for 54.8% of total subscribers.

At the bottom, 9mobile represents the service provider with the least market share at about 8.9% with only 16 million subscribers.

By Oluwafemi Michael 

VIAJulius Alagbe, Economic/Financial Analyst
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