Chapel Hill Denham Analysts ‘Bet Large’ on MTNN, Airtel Stock
When equity analysts bet large on companies’ stock, possibility is that there could be potential upside attributable to positive earnings outlook.
In its equity note, Chapel Hill Denham equity analysts are taking bullish views on large market capitalisation telecommunication giants stocks.
After the release of earnings scorecard, analysts at Chapel Hill Denham have expressed their bullish stance on two leading telecom giants in Nigeria.
By market share, MTN Nigeria remains the industry leader with Airtel coming as a Challenger, the position Glo is contesting vigorously.
According to data from Nigerian Communication Commission, MTNN subscribers expanded to 40.2% of the market share in the second quarter of 2020 from 39.0% in Q1.
Other GSM operators like Glo recorded 26.8% of the entire market size, coming from 27.4% in Q1.
Meanwhile, Airtel market share dropped to 26.8% in Q2 from 27.1% in Q1, and 9Mobile remained at the lower end of the market with 6.2% of the market size from 6.1% in Q1.
Chapel Hill Denham forecast N180.38 price target for MTNN as the investment advised investors to buy the telecom stock.
The review of the company’s performance shows that MTN Nigeria recorded an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 52.7%.
Analysts considered that this is stronger than peers’ average of 43.9% across African telecoms and 41.9% across global emerging market (GEM).
More importantly, MTNN stock is trading on a 2-year forward enterprise value (EV) to EBITDA of 4.4x compare to African and GEM peers’ averages of 4.3x and 6.1x respectively.
Also, Chapel Hill noted that year to date return of 12.2% for MTNN is also stronger than African and global emerging market peers of 8.4% and -3.0% respectively.
In terms of earnings distribution, MTNN’s dividend yield of 5.9% also beats GEM peers’ average of 3.8% and in line with African average of 6.0%.
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“In the short term, we see rebound in voice recovery; post the lifting of lockdowns, as a catalyst for earnings growth while data growth remains strong.
“In the medium term, further penetration of the rural areas in Nigeria should boost subscriber base (71.1mn as at Q2-20) in light of the recent agreement signed with IHS Towers.
“We note that MTNN gained traction in its mobile money agent network with the number of agents rising to 220,000 as at June 2020”, Chapel Hill stated.
MTNN mobile money subscriber base also rose to 2.2 million as at June 2020 from 600,000 as at end of 2019.
Chapel Hill stated that given its well-established on-the-ground agent structure, the eventual issuance of a PSB license by the CBN will be a major driver of MTNN’s earnings over the medium term, and a catalyst for a re-rating of the stock.
“With over 71 million subscribers, MTNN could emerge as one of the largest financial institutions in the country”, the investment firm projected.
In the same vein, analysts also express optimism as Airtel Africa’s delivered EBITDA margin of 44.8%, say it compares favourably with African peers’ average of 43.9% and 41.9% for GEM.
Analysts said Airtel Africa is significantly cheap on an EV/EBITDA basis, trading on a 2-year forward of 3.6x compared to African and GEM peers of 4.3x and 6.1x respectively.
Airtel Africa’s dividend yield of 4.2% is higher than GEM average of 3.8%, albeit below African average of 6.0%.
Chapel Hill explained that Mobile financial service (MFS) has proved to be the next growth engine for Airtel Africa, after data.
Active MFS subscribers rose by 26.9% year on year to 18.53 million as at June 2020, with mobile transaction value rising by 33.9% to US$9.04bn as at June 2020.
It was noted that MFS transaction per subscriber rose by 7.5% year on year to US$164 as at June 2020 with average revenue per user (ARPU) rising by 1.4% to US$1.5.
The MFS ARPU is higher than the ARPU of US$1.4 for the voice business segment, but below data’s ARPU at US$2.5.
“We are positive on the recent partnership with banks to drive MFS revenue and believe that, over the long term, MFS will be EBITDA margin accretive for Airtel.
“Notably, the MFS EBITDA margin of 48% is higher than the 43% generated on mobile services”, Chapel Hill explained.
Chapel Hill Denham Analysts ‘Bet Large’ on MTNN, Airtel Stock
