Vetiva Spots Buying Opportunity in MTN Nigeria after Earnings Beat
Equity analysts at Vetiva Capital limited spot buying opportunity in MTN Nigeria Plc.’s stock after the telecommunication giants beat earnings estimates in the first quarter (Q1) of 2021.
With 20.35 billion shares outstanding, MTN Nigeria Plc.’s (Ticker: MTNN) market capitalisation printed at N3.291 trillion on Friday at a closing price of N161.7 per share after falling from N174 per share in the last 7-day trading peak price.
Due to the impressive outturn for the period, the equity analysts’ team led by Luke Ofojebe maintained a buy rating on the telecom giant’s stock, saying MTN Nigeria outperformed estimates.
Based on the projected 12-month target price, equity analysts at Vetiva Capital are invariably saying the stock could rise at about 40% in the next 12-months.
Q1-2021 Earnings Scorecard
MTN Nigeria Q1-2021 earnings outing saw the company’s revenue jumped by 17% year on year to ₦385 billion, riding on a 43% year-on-year surge in data income.
Analysts said heightened inflationary pressures drove operating costs, up 15% to N181 billion as several cost items went northward. From the company’s financial, it is noted that direct network operating cost and interconnect costs grew 30% and 11% respectively.
Despite this, earnings before interest, tax, depreciation, and amortisation margin improved to 53% from 52% in Q1-2020 and 51% in the financial year 2020 as topline growth was able to subdue the effects of increased operating expenses.
In absolute terms, the company’s earnings before interest, tax, depreciation, and amortisation (EBITDA) jumped 19% to ₦205 billion, 9% above the Vetiva Capital estimate. However, analysts said the reported EBITDA surge was specifically propelled by revenue growth.
After accounting for depreciation and amortisation which printed at N71 billion in Q1-2021 as against N61 billion in the comparable period, as well as net finance expenses that printed at N30 billion from N34 billion in Q1-2020, MTN profit before tax came in at N103 billion.
This represents a 34% increase when compared with N77 billion reported in the comparable period in 2020. As a result, net profit jumped 43% year on year to ₦74 billion, blowing away Vetiva Capital’s estimate of ₦56 billion.
“In light of Q1-2021 earnings surprise, we have made some changes to our full-year assumptions and now expect after-tax earnings to come in at ₦290 billion from the previous estimate of ₦231 billion”, analysts stated. This bringing the investment firm’s valuation of MTN Nigeria Plc. to a one-year target price of ₦228.38.
Buy Recommendation
The Telcos giant’s impressive earnings boosted its rating as analysts advised investors to buy the company stock after placing a 12-month price target of N228.38 per share on it.
“With the suspension of new SIM card registration now lifted, we expect to see some gains in MTN Nigeria’s subscriber base going forward. This, alongside rapidly rising smartphone penetration in Nigeria, is expected to continually drive data revenue upward”, analysts said.
Vetiva added that going by its revised projections, analysts expect data revenue to rise 46% to ₦485 billion in 2021, and over the next four years.
“We see data revenue advancing at a compounded annual growth rate of 25%, possibly surpassing voice revenue as the largest contributor to top line by 2025”, analyst projected.
Meanwhile, compared to data, analysts said they see 2021 voice revenue increasing at a slower pace of 10% to ₦839 billion, amidst intense price competition and increasing preference for cheaper substitutes such as Over-the-Top communication (OTT) voice calls.
“With no imminent sign of a slowdown in headline inflation, we forecast a 14% rise in operating costs, and expect EBITDA margin and EBITDA to come in at 53% as against prior estimate of 51% and ₦863 billion from ₦686 billion respectively”, Vetiva said.
For the financial year 2021, analysts at Vetiva Capital Limited projected MTN Nigeria will deliver a 41% increase in profit after tax to ₦290 billion. Vetiva said the telecommunication giant’s Q1-2021 performance was outstanding regardless of any metrics we look at.
Recall that last year, the Nigerian Communication Commission (NCC) had suspended the registration of new SIM card as well as reactivation of misplaced SIM cards.
With the suspension lasting through the first quarter of 2021, MTN Nigeria’s GSM subscribers base showed a consistent monthly decline from 80.8 million in December 2020 to 75.9 million in March 2021, according to NCC.
Despite this adverse trend, stronger than expected data demand from active subscribers propelled data revenue 43% year on year to a record high of N106 billion, outpacing Vetiva’s N95 billion expectation.
Additionally, Vetiva Capital said voice operation, which accounted for 54% of aggregate turnover grew 8% year on year to N209 billion, beating its expectation by N1 billion – amidst an ongoing shift in subscribers behavioural pattern towards internet driven Over-the-Top call via apps such as WhatsApp, Skype etc.
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Vetiva Spots Buying Opportunity in MTN Nigeria after Earnings Beat
