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MTN Nigeria’s Q1 Earnings Beat Get BUY Rating From FSDH, WSTC Others

The advent of COVID-19 has been a Christmas rally for Telecommunication companies.

The pandemic ushered in strong opportunity to reflate earnings in the first quarter (Q1’20), and MTN Nigeria is riding on this positive momentum.

Both FSDH and WSTC Securities limited see strong upside in the stock as analysts recommend to investors to buy the telecom stock.

MTN Nigeria unaudited financials for the Q1’20 shows an improved performance, as turnover increased significantly.

According to the Q1’20 unaudited financial statement submitted to the Nigerian Stock Exchange, revenue grew by 17%.

Also, earnings before interest, depreciation and amortisation surged 15% year-on-year.

But then, the interest element of the EBITDA made result a bit disappointing as finance cost came stronger than expected.

As a result, a growth of 9% was recorded in profit before tax, in spite of the strong revenue growth.

WSTC Securities limited explained that profit after tax grew even slower by 6% year on year.

This translated to earnings per share increased of 6% from ₦2.38 in Q1’19 to ₦2.51 in Q1’20.

It was discovered that during the period, mobile subscribers increased by 7% to 68.5 million.

Due to this strong increase in demand, active data users jerked up 7% to 26.8 million, analysts stated in the review.

Data Revenue Leads the Way

The 17% growth in revenue, from ₦282.12 billion in Q1’19 to ₦329.17 billion in Q1’20 was on the back a double-digit growth in several of MTNN’s revenue components.

However, the lead revenue growth driver was data revenue, which grew by 59% from ₦46.56 billion in Q1’19 to ₦74.01 billion in Q1’20.

The management attributed the spike in data revenue to the growth in the number of active data users (+1.7 million users) during the quarter.

Furthermore, the management emphasised on the efforts of the Company to deepen data penetration, by increasing 4G coverage to 48% in Q1’20 compare to 44% in Q1’19.

WSTC analysts note explained that by implication, data traffic spiked by 130% year-on-year.

“We note that data revenue contributed 22% to total revenue in Q1’20.

“Voice revenue grew by 6% year-on-year, from ₦182.82 billion in Q1’19 to ₦194.04 billion in Q1’20.

“The increase in voice revenue was reflective of the increment in the number of mobile subscribers which surged +7% to 68.5 million during the quarter”, analysts stated.

Again, voice traffic rose by 7% year-on-year, thereby supporting the voice revenue growth.

According to the management, the deployment of additional SIM registration devices and enhanced customer value management buoyed the growth in subscriber base.

Furthermore, revenues related to interconnect and roaming, grew by 16%, from ₦28.86 billion in Q1’19 to ₦33.60 billion.

Meanwhile, revenue from digital business grew by 12% year-on-year, from ₦8.29 billion in Q1’19 to ₦9.29 billion in Q1’20.

On the other hand, revenue from value added services rose by 34% from ₦8.49 billion in Q1’19 to ₦11.38 billion in Q1’20.

Analysts stated that higher operating costs keep the topline growth in check in the period.

For MTN Nigeria, operating costs grew by 18%, from ₦131.68 billion in Q1’19 to ₦155.65 billion in Q1’20.

As a result, EBITDA margin lowered marginally to 52.7% compare to 53.3% in the corresponding period in 2019.

This is coming despite a 15% EBITDA growth from ₦150.43 billion in Q1’19 to ₦173.52 billion in Q1’20.

However, owing to a 47% increase in net finance costs from ₦23.77 billion in Q1’19 to ₦34.99 billion in Q1’20, profit before tax grew slower.

MTN Nigeria’s pretax profit expanded by 9%, from ₦70.09 billion to ₦76.31 billion.

WSTC Securities said: “From our analysis, the higher net finance costs of 47% resulted from the double-whammy of a lower finance income and a higher finance cost”.

On finance income, analyst at WSTC Securities highlighted that the Company recorded a 34% decline from ₦8.69 billion in Q1’19 to ₦5.69 billion in Q1’20.

The decline was attributed to lower-yields on bank deposits and other financial investments.

Surprisingly, finance cost grew by 41%, from ₦28.85 billion in Q1’19 to ₦40.69 billion in Q1’20, reflective of the 96% increase in total borrowings.

Analysts calculated that total borrowing expanded from an average of ₦484.66 billion in Q1’19 to an average of ₦948.88 billion in Q1’20.

“We adjusted the finance cost. A sum of ₦3.62 billion was incurred in Q1’19 which represented time value accretion on regulatory fine.

“We discounted the line to see the true finance cost performance.

“Hence, profit before tax margin decreased to 23.2% in Q1’20 compare with 24.9% in Q1’19.

“This, notwithstanding the 9% year-on-year growth from ₦70.09 billion in Q1’19 to ₦76.31 billion in Q1’20”, WSTC stated.

Then, owing to a higher effective tax rate of 33% in Q1’20, which 200 basis points above Q1’19, profit after tax grew 6%.

It surged from ₦48.44 billion in Q1’19 to ₦51.15 billion in Q1’20.

Improved Cash Generation Underpins Business Fundamentals, analysts at WSTC capped.

WSTC explained that net cash flows from operations grew by 127%, coming from ₦67.68 billion in Q1’19 to ₦153.74 billion in Q1’20.

Thus, the increased cash flow in Q1’20 was attributed to the non-recurrence of a ₦55 billion regulatory fine paid in Q1’19.

WSTC noted in the report that the Company completed its fine payment in May 2019.

Meanwhile, the Company’s Free Cash Flow to Equity grew by 10%, coming from ₦54.94 billion in Q1’19 to ₦60.38 billion in Q1’20.


Analysts at WSTC expect to see sustained growth in revenue over the subsequent periods of the year, particularly on the data revenue.

“We believe that the lockdown associated with the COVID-19 and the increased usage of internet services would spur the increase in data revenue.

“However, we also believe that revenue from voice could be pressured by low demand.

“Our expectation of a pressured demand from voice revenue stems from lower household income”, analysts explained.

The management, in a press release, admitted a change of trend in voice traffic.

While a robust growth is expected for the data revenue, it might not be enough to offset the pressure expected on voice revenue.

This is due to the significant contribution of voice revenue to total revenue.

MTN Nigeria financials show that voice accounted for approximately 70% of its revenue.

Then, the recent devaluation of the exchange rate would also be negative for the Company in terms of operating costs and capital expenditure.

Owing to increased borrowing levels, analysts expect to see a sustained high finance costs in the subsequent periods of the year.


Equity research analyst at WSTC Securities forecast an earnings per share of ₦11.05, and a dividend per share of ₦7.20 for FY’20.

At the current market price, the earnings yield, and dividend yield on the stock stand at 9% and 6% respectively.

WSTC stated that analysts estimated the future dividends, cash flows, and residual incomes and discounted each of them by our estimated cost of equity of 27%.

“In our view, our cost of equity estimate reflects the risks associated with the stock, as well as the opportunity costs of the stock”, analysts stated in the review.

Overall, WSTC Securities arrived at a fair value of ₦158.81 for MTN Nigeria stock, which translate to about 40% discount in relation to market price.

Explaining further, analysts said based on the current market price of ₦120, and the total return of the stock, the MTN Nigeria trades at a 38% discount to our fair value estimate.

Hence, we recommend a BUY, WSTC Securities stated in its equity analysts note.

In the same light, analysts at FSDH also recommend buy rating as the firm see about 60% upside in share price.

In it equity note, FSDH expressed concerned about the impact of further devaluation on operating expenses for MTN Nigeria.

It said while the company has not stated the percentage of its costs that are dollar based, it highlighted that it is affecting operating expenses management significantly.

“Nevertheless, we have modeled this impact in our model with operating expenses (excluding depreciation) to revenue ratio forecasted at 47.2% (Q1 2020 – 47.3%).

FSDH also retained key profit lines forecast as analysts watch developments on the company’s interest expenses as well as Tax expenses.

FSDH explained that since our last note, MTN Nigeria has appreciated 12.6% to ₦112 (as at 30 Apr 2020).

FSDH stated that MTN Nigeria fundamentals across revenue & net income growth, return on equity, and operating efficiency remains very healthy with high leverage the only sticking point.

Analysts reckoned that MTN Nigeria stock trades at a steep 49.6% discount to our Emerging Market peer average PE ratio.

“Thus, we retain our BUY recommendation on the stock with a target price of ₦177.11 which implies an upside of 58.1% to closing price of ₦112 as at 30 April 2020”.

MTN Nigeria’s Q1 Earnings Beat Get BUY Rating From FSDH, WSTC Others