MTN Nigeria: Positive Outlook after Q3 Earnings Scorecard
MTN Nigeria Plc returned to profitability in the third quarter (Q3) of the financial year 2024, a development that marked a significant turning point after three consecutive quarters of net losses. The feat signalled a successful recovery strategy and a promising trajectory moving forward.
The company posted a Profit after Tax (PAT) of N4.13 billion for Q3 2024, a remarkable improvement following challenging financial periods in the first half of the year.
This strong performance is indicative of the effectiveness of MTNN’s strategic initiatives, particularly in addressing key challenges such as foreign exchange (FX) volatility and escalating operating costs.
One of the primary drivers of MTNN’s return to profitability in Q3 was its focused management of FX risks, which had previously put significant pressure on the company’s operating expenses.
As the naira remained volatile against major currencies, particularly the U.S dollar, MTNN took decisive actions to mitigate the negative impact of currency fluctuations on its cost base. A pivotal component of the company’s strategy was the renegotiation of its tower contracts, which had previously been denominated in U.S dollar.
This renegotiation helped the company achieve a notable net savings of N54 billion in operating expenses tied to tower costs.
Additionally, MTNN’s focus on improving its operational efficiency paid off with an uptick in its Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin, which increased to 37.6% in Q3 2024 from approximately 32.0% in Q2 2024.
This improvement emphasises the company’s ability to control costs and maximise profitability amidst a challenging operating environment.
Looking ahead, MTNN’s management remains cautiously optimistic about its prospects for the next 12 months, primarily due to the expectation of relative stability in the currency exchange rates.
With ongoing efforts to manage FX exposure and reduce operating expenses, there is a sense of confidence that the company will continue to build on its recovery from the losses of 2023 and move toward a more stable financial performance in 2024.
While MTNN is projected to see some positive growth in 2024, there is a need for cautious optimism regarding the financial year 2025.
While much of the growth in recent years has been driven by its data segment, which accounted for 72.6 percentage points of the 111.0% topline growth over the last five years, there are still significant challenges ahead.
The data segment remains the key growth driver, underpinned by a steady increase in data consumption per user, which reached 11.2GB by the end of September 2024 compared to 8.5GB a year earlier.
This consistent growth in data consumption suggests that MTNN will likely sustain its data-driven expansion in the near term.
However, voice revenue, which has historically been a core revenue stream for MTNN, showed a slower growth trajectory in the first nine months of 2024 compared to data, reflecting a 52.2% year-on-year increase in data revenue versus a more modest growth in voice.
This slowdown is attributed to the net disconnection of 2.7 million users following the completion of the National Identification Number (NIN) and Subscriber Identification Module (SIM) linkage exercise.
Despite this, MTNN’s voice revenue is expected to recover, with projected growth rates of 12.0% for the financial year 2024 and 11.2% for the financial year 2025, driven by the re-onboarding of disconnected customers and the positive effects of mobile number portability on the customer base.
Over the last five years, MTNN’s topline growth has been overwhelmingly driven by its data segment, which remains the bedrock of its future expansion strategy. The data segment’s contribution to overall revenue growth has consistently outpaced other business lines, including voice, SMS, and roaming.
In the next few years, MTNN is expected to continue benefiting from the structural shift in consumer behaviour, with data consumption likely to continue increasing as more users rely on mobile internet for a variety of services.
However, the company’s ability to maintain its competitive edge in voice services will also be crucial to its overall performance. While the 2024 outlook for voice remains positive, driven by customer reactivation, MTNN will need to manage the potential risks of customer churn and market saturation, particularly in the face of increasing competition in the Nigerian telecom sector.
Investment Considerations and Recommendations
As investors look ahead to MTN Nigeria’s performance in Q4 2024 and beyond, the company’s strong Q3 results offer a glimpse of the potential for a solid recovery, though challenges remain. The company’s ability to continue managing FX risks, reduce costs, and sustain its leadership in the data market will be key to maintaining profitability.
At the current market opening price of N194 to to close at N207.80 per share, gaining 7.11%. MTNN presents an intriguing proposition for investors, especially in light of its positive Q3 performance and strategic initiatives. However, given the potential for volatility in the broader market and the uncertainties surrounding the FX environment, we recommend a cautious approach for potential investors.
Those who are already holding MTNN shares should consider maintaining their positions, while new investors could take a wait-and-see approach, awaiting further clarity on Q4 results and the overall macroeconomic environment.
Overall, MTNN’s return to profitability and the company’s commitment to enhancing operational efficiency and navigating FX challenges position it well for a gradual recovery in the coming quarters, making it an attractive option for long-term investors with a moderate risk tolerance. CBN Opens FX Window for BDC to Stock up at NFEM Rate
