How MTN Plc dazzles the market with first quarter result
My colleagues at the MarketForces Africa asked; “Would stock market behave differently if all the Telcos were to be listed”.
Honestly, I don’t have idea where that thought came from. But would market really behaves differently if MTN were to be on the list? It is certain that corporate stocks reacts differently to market beta.
Some corporate stock and market beta are inversely related. That means if market beta dropped, some stock may lose more.
The level of volatility would really have to be monitored before the question can be answered.
MTN on the bourse
Now that MTN has become a Plc, its activities must come out from the shadow into heavy light of scrutiny by the market participants – say analysts, investors, subscribers and regulators alike. Meanwhile, not many people really know that MTN is making as much as N282 billion quarterly. Yes, that was the first quarter result of financial year 2019.
What that means is that, by straight extrapolation, the giant telecommunication firm may be crossing N1 trillion revenue in mark in 2019. While the upper line closed the quarter with N282 billion total revenue, the bottom line closed at N48.4 billion post all relevant accounting claims. It means that 17.16% of the total revenue were turned to free cash flow to shareholders. That says a lot about industry as a highly capital intensive business – it burned cash.
How does it look like in term of estimates?
It has been estimated that MTN Plc would reach 47 million new mobile subscribers by 2023, with mobile penetration projected at 91.8% for Nigeria. Also, the firm’s smartphone penetration is expected to increase to 95 % in the same period from 47% in 2018, according to data provided by Afrinvest.
Another upside to MTN is the fact that low data penetration and 4G coverage presents opportunities for data revenue growth. This is apart from the fact that the low level of banking penetration is expected to support Fintech revenue.
Performance
MTN Nigeria recently published its first quarter of 2019 earnings ahead of the finalisation of its listing by introduction on the Nigerian Stock Exchange. Okay, some investors are already looking for opportunity to own the stock.
Wait, not so fast. MTN comes to market by way of introduction. That means, intention to raise fresh capital is not on the table, at least yet. The Telco’s listing means the firm is giving existing shareholders platform to transact their shares. In a plain language, the bourse would provide the stock investors an opportunity to convert their shares into cash –if needs be.
But do you think they would really be willing to sell in the short term? No, think about Nestle. This kind of stock are closely held by legacy investors. I am seeing a stock that is not going to be widely held. What that means is that, it is premium stock and expect to see high price earnings ratio.
Does MTN deserves it? Simply, Yes!
Is MTN familiar with ethics, code of corporate governance?
Unlike before the listing, now its activities would be closely monitored. Investors, analysts and regulators would be very much interested in the company’s affairs now.
Read Also: MTNN stands between balancing corporate governance and profit making
The management has to familiarize with listing requirements, ethics and code of corporate governance. MTN rating in the past in this regard cannot be envied. It is the only company that has ever been fined in trillion naira in Nigeria.
This pose some challenges to the management. Any break in corporate governance code now would be sanctioned by the regulators. The Securities and Exchange Commission, The Nigerian Stock Exchange but honestly Central Bank of Nigeria would not have much say on the company’s activities going forward. Better still, the burden of regulations has shifted to the SEC, NSE and perhaps investors by offloading and reloading of their baskets.
In the first 3-months in 2019
In the first quarter of 2019, MTN average revenue per user (ARPU) improved by 1.1% year on year to N1, 510. What this means is that the telecommunication company made at least N1510 per subscribers in the first quarter. Don’t forget that the firm total subscribers increased by 3.6% to 60.3 million.
In addition, data subscribers improved by 5.6 million to 20.4 million in the first quarter, data is the fastest growing segment, with a revenue share of 26.0%. MTN Nigeria is the undisputed leader with market share by subscribers and value of 39.0% and 50.0% respectively.
Looking at the income statement, it would be observed that the telecommunication company’s revenue increased by 13.2% year on year to N282 billion in the first quarter of 2019, driven by voice (74.9%), data (16.6%), Fintech (2.9%) and Digital (1.0%) revenues. However, there are other areas where MTN is generating revenue apart from voice, data and the like. In the period, other sources accounted for 4.5%.
In terms of earnings capability, MTN earnings before interest, depreciation and amortization, EBITDA, margin increased to 53.3% in the first quarter compare with 41.8% in the comparable period in 2018. Obviously, before it comes to market.
Down the line, MTN profit after tax (PAT) rose to N48.4 billion in the first quarter of the listing from N32.2 billion in the comparable period in 2018. This translated to a PAT margin of 17.2% while MTN effective dividend pay-out is 80.0%. That means, only 20% of the after profit were retain as undistributed.
Meanwhile, MTN Group plans to issue commercial paper worth an estimated N200 billion in 2019. You see? There is a signal, albeit positive for a company that is coming to the market by way of introduction and unwilling to raise fresh funds but chose to go for fixed interest source of funds. This is just to say; “we don’t want our interest to be diluted – yet”.
It would be recalled that MTN Nigeria Communications Plc announced on the 24th April 2019 that it had completed its conversion from a private company to a public liability company (Plc). The conversion is a legal requirement for MTN’s listing by introduction on the Nigerian Stock Exchange (NSE).
MTN has completed registration of 20,354,513,050 (20.35 billion) ordinary shares of N0.02 each with the Securities and Exchange Commission (SEC).
MarketForces Africa investing survey discovered that many people want MTN to raise funds by the way of public offer. Some analysts said that public offer would be oversubscribed as MTN is perceived as money making machine in general. Is that the case really? Not always so but MTN presents great opportunity for the investing public.
