Pay Attention to MTNN, Analysts Pitch 61% Upside to Investors
Equity analysts at Chapel Hill Denham have set 12-month price target of ₦180.38 per share for MTN Nigeria Plc, thus advise investors to Buy the underlie assets for possible upside estimated at more than 60%.
Breaking the return profile down, Chapel Hill Denham estimated a total return of 60.5% which comprises capital gain of 53.0% and dividend yield of 7.5%.
The investment opportunities in MTNN:
Analysts at Chapel Hill Denham said they believe MTNN which analysts rated BUY at current price of ₦117.90 on the Nigerian Stock Exchange, is a company investors should pay more attention to for investment opportunities, in its stocks or debt securities, with relatively compelling returns.
Analysts said the interim dividend per share (DPS) of ₦3.50 announced by MTNN is about 19% higher than the interim dividend declared in H1-19.
This is coming despite a 4.7% year on year decline in EPS to ₦4.66, thus represents about 75% dividend pay-out ratio.
Importantly, Chapel Hill Denham explained that the dividend yield of 3.0% is one of the top three interim dividend yields (after Seplat’s 4.9% and Access Bank Plc’s 4.0%) in the NSE Premium Index, based on the latest available interim dividends.
Supporting the recommendation, Chapel Hill Denham said MTNN also has ₦100 billion commercial paper issued and listed on the FMDQ.
“The ₦20 billion MTNN CP 17-Dec-20 and the ₦80 billion MTNN CP II 5-Mar-21 have yields of 4.04% and 4.98% with days to maturity of 131 and 219 respectively, which are higher than the average Nigerian T-Bills yield of 1.75%, based on FMDQ data”, analysts.
Explaining what analysts like about the MTNN results, Chapel Hill Denham said the Telco giant continued to gain market share of mobile and internet subscribers in Q2-20, based on Nigerian Communications Commission’s (NCC’s) data.
Specifically, MTNN subscribers expanded to 40.2% of the market share in Q2 from 39.0% in Q1.
Other GSM operators like Glo recorded 26.8% of the entire market size, coming from 27.4% in Q1.
Meanwhile, Airtel market share dropped to 26.8% in Q2 from 27.1% in Q1, and 9Mobile remained at the lower end of the market with 6.2% of the market size from 6.1% in Q1.
Analysts said MTNN also gained market share of internet subscribers in Q2-20.
The Telco company market share improved to 31.0% in Q2 from 30.4% in Q1, staying ahead of Glo which has 19.4% in Q2 from 17.9% in Q1.
Airtel market share settled at 19.2% in Q2 as against 19.5% in Q1 while 9Mobile did 3.6%, dropped from 4.1% in Q1.
Based on MTNN’s mobile subscriber definition, the company’s subscriber base rose by 10.6% year to date to 71.1 million as at Q2-20, tracking ahead of analysts estimate growth of 7.7% in 2020.
“We believe the recent launch of e-SIM is positive for subscriber growth over the medium-to-long term”, Chapel Hill Denham stated.
Revenue grew by 12.5% year on year in H1-20, supported by +8.4% year on year growth in Q2-20.
This is ahead of our financial year 2020 forecast growth of 11.9%, Chapel Hill Denham explained and it was driven by data revenue growth of 57.6% in H1-20.
The data revenue growth was underpinned by 15.1% year to date increase in active data subscribers, 4G penetration, and higher network capacity to support Covid-19 induced traffic. 
Notably, data traffic jumped by 141.2% year on year, supported by +27.2% quarter on quarter lift and while usage rose by 76.6% year on year(23.3% QoQ).
MTNN also added 4.0mn new smartphones to its network, lifting the number of smartphones to about 31 million, which translate to 43.5% penetration rate.
Read Also: Investors Overbid for DMO’s First Bond Auction in Q3
Accordingly, data accounted for 24.2% of MTNN’s revenue in H1-20 from 17.3% in H1-19.
The airtime lending product, MTN Xtratime, remained supportive of fintech revenue, lifted +29.6% year on year.
Chapel Hill Denham said according to the Telco’s management, the number of agent network expanded to 220,000 nationwide.
Agent network however processed over 14.6 million transactions, amid an active customer base of 2.2 million, which is more than tripled on a year to date basis.
“In our view, this is an indication of a tremendous fintech growth opportunity when MTNN is issued a PIB licence”, analysts stated.
On the digital segment of the business, growth was also significant at +121.8% year on year, but MTNN redefined its active user base to capture unique paid subscriptions.
“Thus, the digital customer base, which we had captured at 2.1 million by Q4-19, is now reported at 1.6 million active digital customers”, Chapel Hill Denham stated.
MTNN earnings before interest and tax (EBITDA) and free cash flow grew by 8.2% year.
This settled EBITDA margin at 51.3% from 53.3% in H1-19 and 1.9% year on year respectively in H1-20.
“We, however, note that both EBITDA and free cash flow were pressured in Q2-20 on COVID-19 impact and currency weakness”, analysts stated.
As a result, the annualised EBITDA and free cash flow growth trail analysts’ financial year 2020 forecasts.
Interestingly, Chapel Hill Denham said MTNN’s cash flows were preserved for dividend payment and business growth in H1-20, unlike H1-19 when the cash flows were partly dented by the payment of ₦110 billion as final fine.
“Although capital expenditure increased+18.7% year on year in H1-20, rights of use assets rose ahead of analysts forecast, we see the increased investment supporting growth in the coming quarters”, Chapel Hill Denham stated.
On the downside, Chapel Hill Denham explained that voice revenue contraction is a concern, but the firm stressed that it was an industry phenomenon in Q2-20, due to Covid-19.
The results showed that MTNN’s voice revenue dropped by 9.6% quarter on quarter with the growth in data not sufficient enough to fully offset the impact of the decline in voice revenue on the business.
In particular, analysts stated that voice traffic was low in April and May, due to lockdowns.
Compare with peers, analysts said likewise Airtel Nigeria’s voice revenue fell by 10.8% quarter on quarter in Q2-20.
Analysts remarked that it is, however, interesting that the easing of lockdowns has started to lead to a recovery in voice traffic.
Chapel Hill Denham stated that major initiatives such as the deployment of more SIM registration devices, further rural penetration and attractive offers to customers should support voice revenue growth in second half of 2020.
Recalled that MTNN recently announced that it has entered into an agreement with IHS to ensure increased focus on rural connectivity and fibre deployment.
Chapel Hill Denham however recognised that the agreement has an element of higher cost as the foreign exchange rate agreed for tower/site leases is now ₦385 at National Autonomous Foreign Exchange rate from CBN rate of ₦360 previously.
Pay Attention to MTNN, Analysts Pitch 61% Upside to Investors
