MTN Nigeria Spikes 20.6% as Investors Discount Tight Projections

Telecommunications giant, MTN Nigeria Plc, experienced strong buying interest in its shares as tension over an unusually huge post tax loss caused a massive drop in its market valuation. Despite tight earnings projections, investors are finding their way back to acquire more shares.

The telecom company’s market capitalisation declined sharply after it announced significant earnings losses in its financial year 2023 results on the Nigerian Exchange. Last week, the telecommunications company’s share rallied as investors made fresh entries, which reversed large selloffs that followed its earnings downturn announcement.

Details from the stock market showed its share gained 20.6% over five trading sessions to settle at N267.80. This lifted its market capitalisation to N5.622 trillion.  In a statement, MTN Nigeria revealed that the devaluation of the naira has had a material impact on its financial position, resulting in the reported loss and depleted reserves.

In its financial scorecard, the telecom company recorded a total of N137 billion in losses after tax due to FX disadvantages. A negative exchange rate costs the telco more than N740 billion in losses. MTN Nigeria relies on foreign inputs to deliver cutting-edge service to its customers.

MTN Nigeria’s operations are exposed to foreign currency volatility in its operating and capital expenditures, management said. The most significant of these exposures relate to the tower lease costs, which comprised the bulk of the 45–50% foreign currency exposure in its operating expenses in 2023.

“The majority of the lease costs are indexed to the US dollar but are invoiced and paid in naira. Our tower lease costs are recognised in line with IFRS 16 and IAS 21, which has had several impacts on our financial performance,” MTN Nigeria said.

The telecom company explained that the nature of payment for tower contracts requires quarterly payments at the beginning of each quarter using the applicable exchange rate based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the same preceding quarter for others.

Due to FX pressures, MTN Nigeria said it has progressed constructive discussions with IHS on changes to the existing tower lease contracts that could, if successful, result in improvements that help us mitigate macro risks, including currency.

“We believe this will go a long way in restoring stability in our operating and earnings profiles and reserves,” management stated.

As we navigate the near-term headwinds to our business, we remain committed to delivering on our growth strategy through commercial execution and continued investment, guided by a disciplined focus on unlocking further efficiencies. We will drive the operating leverage in our business to restore growth in earnings and sustain strong cash flow generation and returns over the medium term.”.

Outlook

In its outlook statement, MTN Nigeria Plc said it expects 2024 to be a challenging year due to the rising inflation and devaluation of the naira.  The telecom giant anticipated that inflation and an unstable naira would put additional pressure on consumers, the cost of doing business, and further potential forex losses.

On the regulatory front, the company said it has deployed additional resources at its service outlets and provided alternative channels to drive compliance with NCC’s NIN-SIM directive.

“Our disciplined focus on unlocking further expense efficiencies will help to drive the underlying operating leverage in the business to restore profit growth over time,” MTN Nigeria said in a note that followed its financial scorecards for 2023.

For MoMo Payment Service Bank (PSB), the telecom company said it will continue to drive consumer education and awareness, leveraging our distribution network, which has enabled us to grow the active wallets and scale the agent and merchant ecosystem.

“We are expanding the bouquet of services from basic to advanced, including cross-border remittances, to boost adoption and monetisation. We will leverage the momentum from Q4 to accelerate the growth of wallets and the adoption of services as we expand our merchant ecosystem.”.

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