CSL Stockbrokers Bet on MTNN for 14% Upside, Cite Decent Numbers
For CSL Stockbrokers, MTN Nigeria Plc is a buy over what the investment firm’s analysts called decent numbers in the first half of 2023 despite foreign exchange loss challenges that impacted the telecom company’s earnings.
The telecom giant with about 39% of the market share saw a 25.4% year-on-year decline in pretax profit to N200.3 billion from N268.6 billion in the first half of 2022. Its net income declined by 29.1% to N128.68 billion from N128.68 billion over FX losses on transactions. Its earnings per share fell to N6.32.
“We maintain our Buy recommendation on MTNN with a target price of N318.20. Our target price implies an upside potential of 14% compared to the last closing price of N274.40 on 17 August”, the investment firm said in its equity report.
In reviewing the numbers, analysts said MTN Nigeria’s numbers were buoyed largely by double-digit growth in voice, up by 12.1% year on year to N562.6 billion in the first half of 2023 while data revenue spiked by 34.9% to N470 billion.
With buckets of uncertainties, the first half was not all rosy for the telecom amidst rising competition for consumer wallets and Nigeria’s running inflation. However, CSL Stockbrokers noted that the company thrived as operating expenses surged by 8.8% year on year to N267.3 billion.
After the Central Bank bit the bullet by floating the naira, the telecom giant saw a net FX loss of N131.5 billion as negative currency fluctuation hit the bottom line.
MTN Nigeria’s first half of 2023 unaudited report showed that profit before tax declined by 25.4% year on year to N200.3 billion from N268.6 billion in the comparable period in 2022.
“We maintain our positive medium to long-term outlook on MTN Nigeria, we believe the company is well positioned to benefit from further growth in mobile and data penetration in Nigeria’s telecommunications industry.
“Additionally, the significant investments made by the firm in improving its 4G and 5G network infrastructure and expanding data coverage should attract new customers to its network”, CSL Stockbrokers said in its equity report.
MTN Nigeria keeps revenue growth intact as the company controls about 39% of the market share in Africa’s most populous country. Its top line came higher by 22% year on year to N1.1 trillion from N950 billion in the first half of 2022.
Having noted that pattern, the company’s fundamentals, analysts said MTN Nigeria’s efforts to accelerate 4G and 5G network coverage in order to capitalize on growth opportunities and drive data usage will bode well for the company’s revenue in 2023.
“We note that the company will continue to drive its broadband strategy to capture significant market growth. We note that the fintech segment will contribute significantly to the growth of the company, as the company continues to improve the effectiveness of its platform while also driving growth in active MoMo wallets.
The telecom giant saw total revenue increase by 4% to N590.6 billion in the second quarter of 2023 from N568.1 billion reported in the first quarter of the same year.
Analysts observed that the growth in service revenue remained a major drive of total revenue growth in the period, supported by a surge in service and data revenue. According to its unaudited financial statement, MTN Nigeria saw a +12.1% year-on-year growth in voice revenue, rising to N562.6 billion and data revenue rose by 4.9% year on year to N470 billion.
Analysts said data revenue remained strong in H1 2023 increasing by 34.9% year on year to N470 billion from N348.4 billion in H1 2022. CSL Stockbrokers said growth in data revenue could be attributed to the increased usage supported by the enhanced capacity through network expansion and smartphone penetration.
Analysts however noted that the company’s data revenue was negatively impacted by the harmonization of telecommunication codes by the NCC in Q2 and the implementation of a minimum age requirement for sim registration from 16 to 18 years.
MTN Nigeria reported that its 4G network now covers 80% of the population, up from 79.1% in December 2022, and data usage (GB per user) grew by 28.2% to 8.1GB in the period under review.
The number of smartphones on our network increased by 1.8 million, bringing smartphone penetration to 53.0%. The company reported that active data users increased by 11.5% to 41.0 million as it added 1.5 million active users in H1 2023.
The management noted that the company has rolled out 833 cumulative 5G sites in 15 cities covering approximately 6% of the population, with the 5G spectrum now constituting approximately 21% of the data traffic in 5G-colocated clusters.
“We believe the rollout of the 5G spectrum will lead to significant growth in data subscribers in the medium to long term as customers experience improved speed when downloading and uploading content from the internet.
“This, coupled with the expected hike in data tariffs should accelerate the growth in data revenue over the medium to long term. Hence, we maintain our projections of a growth of 40% in data Revenue in 2023e. We also estimate the contribution of data Revenue to overall Revenue will improve to 45% from 38% in 20222, CSL Stockbrokers said.
Voice revenue grew at a double-digit rate of 12.1% y/y to N562.6 billion despite intense rivalry for consumers’ wallets in the period characterised by naira and subsidy removal pressures.
Analysts said they attribute the growth in voice revenue to its rural expansion program and the increase in voice subscribers which was supported by the company’s revamped voice proposition and increased customer value management.
MTN Nigeria recorded a 4% year-on-year increase in its subscriber base, adding a whopping 1.5 million subscribers to increase the mobile subscribers to 77.1 million in the period.
But analysts said they now expect the growth in voice revenue to moderate due to the growing shift to a data-centric model driven by increased smartphone penetration, and increased data usage.
Also, given the recent directive of the NCC as contained in its new quality of service business rules, instructing telcos to deactivate any line that has not been used for any revenue-generating activity for 6 months, analysts said they expect voice revenue to be negatively impacted in H2 2023.
CSL Stockbrokers estimated voice revenue to grow by 5% in 2023, compared to the growth of 6% reported in 2022. Analysts also estimated the contribution of voice revenue to overall revenue to moderate to 45% in 2023 from 51.7% in 2022.
Analysts believe the decline in voice revenue will be offset by growth in non-voice revenue especially mobile data and Mobile Financial Services. In the period, Fintech revenue grew by 7.8% year on year to N43.6 billion, and digital revenue, up 49.9% year on year to N15.3 billion.
“We expect to see the fintech segment contribute significantly to total revenue in the medium to long term, as the management noted that the fintech segment is on a good trajectory in terms of MoMo users and agents despite the slowdown in the growth of active MoMo users (up 33% y/y) in H1 which was due to the cash crunch”.
MTN Nigeria reported growth in direct network operating costs which surpassed revenue growth, climbing by 28.3% year on year to N276.9 billion from N215.8 billion in the comparable year.
Amidst market pressures, operating expenses rose by 18.8% year on year to N267.3 billion from N224.9 in 12 months earlier. Analysts said growth in operating expenses reflects the continued exposure to Naira depreciation, elevated inflation and unavailability of FX leading to increased costs of lease rentals and additional site rollout.
CSL Stockbrokers noted that the forex unification did not have any material impact on H1 earnings before interest tax depreciation and amortisation (EBITDA) margins. Stretching further, analysts said estimated the telco’s EBITDA margin to settle at 56% in 2023.
Given the scarcity of forex, the company’s foreign currency facilities were necessary to fund its capex program, as it took on part of its trade lines, which had to be revalued.
The company noted that the foreign exchange devaluation may not have a significant effect on the company in Q3, given the nature of the company’s tower portfolio. However, analysts said they expect the full impact to kick in in Q4.
“Overall, we believe the strong footing of MTNN in the Nigerian telecoms market coupled with its significant holdings of spectrum and fibre networks should put the firm in a highly competitive position to benefit from further growth in mobile and data penetration in Nigeria’s telecommunications industry”, the firm explained. #CSL Stockbrokers Bet on MTNN for 14% Upside, Cite Decent Numbers