FX Loss: Analysts Differ on MTN Nigeria Earnings Outlook
Telecommunication giant, MTN Nigeria Plc (Ticker: MTNN) has continued to gravitate near N6 trillion in market capitalisation, racing towards reclaiming the trophy as the number one stock in the local exchange.
Due to FX loss, the telecom leader delivered a no-too-good earnings scorecard befitting its market identity in the first half but analysts are hopeful that performance will be stable in the latter part of the year.
Its earnings broke in the first half following Nigeria’s FX market liberalisation, which triggered sizeable revaluation losses and deteriorated the company’s bottom line.
Investment firms reviewed their estimates in line with the telecommunication company’s half year performance. In its equity report, analysts at Cordros Capital Limited have kept MTN Nigeria on hold, maintaining a neutral position is a way to tell investors not to trade the stock until further notice.
Meanwhile, CSL Stockbrokers Limited has a different opinion, despite noting the pressures on the telecom company’s earnings performance in the period. Analysts maintained the numbers are decent.
“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”, CSL Stockbrokers said in its report.
Analysts are impressed by significant investments made by the telco in improving its 4G and 5G network infrastructure and expanding data coverage, which they think should attract new customers to its network. However, analysts at Cordros Capital reduced their target price on MTN Nigeria Plc by 8.4% to N296.72 from N323.84 and maintained a hold rating.
“The downward revision to our TP reflects heightened cost pressures from the newly implemented VAT charge on tower leases and the possible effects of the higher FX rate on tower costs in H2. Nonetheless, we still expect MTNN to sustain the growth trajectory across its value channels, given the company’s continuous ramp-up of gross connections and capacity roll-outs.
“We estimate a total dividend per share of N14.47 in 2023”, analysts at Cordros Capital said in its equity report on the company. In contrast, guiding investors into the market, CSL Stockbrokers said it maintained a 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”
In its review, Cordros Capital analysts said they expect voice revenue to remain the biggest contributor to revenue growth, with most of the support coming from an expected increase in voice subscribers amid resilient usage of its voice propositions.
Analysts estimated a 5.0% year-on-year increase in MTNN’s subscriber base to 79.30 million by year-end 2023 from 75.60 million in 2022 – translating to a 2.9% increase from the current level as of June 2023 (77.10 million).
On data, the investment firm said MTNN’s investments in capacity to accelerate 4G and 5G network coverage will remain the key factor driving the value from this segment.
“Furthermore, we believe MTNN’s intentions to repurpose existing voice spectrums to cover the increasing demand for data will be value accretive to data revenue growth”, Cordros Capital stated.
Analysts at the investment firm said they project revenue growth of 29.9% for 2023 and model an average growth of 12.8% in 2024-2027E.
“We project a 732 basis points decline in MTNN’s 2023 estimated earnings before interest tax depreciation and amortisation (EBITDA) margin, reflecting heightened cost pressures. Consequently, analysts forecast that MTNN earnings per share (EPS) will decline to N16.27 from N17.63 in 2022, highlighting the one-off impact of the steep FX depreciation in H1-2023.
The investment firm said it expects a depletion in EBITDA margin to 45.9% in 2023, stemming from the increased pressures on tower costs.
“We believe the decline will be materially driven by the impact of the FX depreciation on tower costs, as earlier noted. However, going into 2024, we forecast a rebound to 50.3%, with gradual yearly increases expected through 2027”, Cordros Capital said in its equity report.
CSL Stockbrokers said they 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.
MTN Nigeria Plc reported a 22% year-on-year growth in revenue to N1.1 trillion in H1 2023 from N950 billion in H1 2022. On a quarterly basis, the telecom company’s revenue increased by 4% to N590.6 billion in Q2 2023 from N568.1 billion in Q1 2023.
The growth in service revenue remained the primary driver of the surge in topline performance in the period. Service revenue growth was supported by a 12.1% surge in voice revenue which printed at N562.6 billion and about 35% growth in data revenue to N470 billion.
Data revenue came strong in H1 2023 increasing by 34.9% to N470 billion from N348.4bn in H1 2022, attributed to the increased usage supported by the enhanced capacity through network expansion and smartphone penetration.
According to analysts, 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.
The company 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”, MTN said in a statement.
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 2022”, CSL Stockbrokers said in a report.
In the period, MTNN recorded a 4% year-on-year increase in its subscriber base, adding 1.5 million subscribers to increase the mobile subscribers to 77.1 million in H1 2023. Analysts said they 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. Overall, CSL Stockbrokers estimate voice revenue will grow by 5% in 2023e, compared to the growth of 6% reported in 2022.