WSTC Analysts Raise MTN Nigeria’s Profit Expectation, Target Price
WSTC Securities analysts have raised MTN Nigeria Plc.’s profit expectation and a target price (TP) upgrade to N200 per share after a beautiful earnings outing in the first quarter (Q1) of 2021.
In Q1-2021, MTN Nigeria Plc. increased its 4G coverage to 62%. This resulted in increased earnings from its data business as Nigerians delve into over-the-top calls with Whatsapp, Skype, etc. The financial performance showed the Group reported a 17% year-on-year revenue growth from N329.17 billion in Q1-2020 to N385.32 billion.
Analysts said the topline growth was driven by strong sales from the telecommunication company’s data business. Specifically, data revenue rose by 43% year on year from N74.01 billion in Q1-2020 to N105.70 billion in Q1-2021. Hence, the revenue growth from the data accounted for 56% of the Group’s total revenue growth in Q1 2021.
In its review, analysts explained that the telecom company’s operating cost grew by 15% from N157.40 billion in Q1 2020 to N180.77 billion in Q1 2021. It was then spotted that major cost drivers during the period were direct networking costs which expanded 30% year on year from N72.11 billion to N93.87 billion.
Also, interconnect and roaming costs added further pressure after 11% year-on-year jump from N28.02 billion to N31.18 billion. This came in addition to 18% increase in discounts & commissions from N16.05 billion to N18.91 billion.
Analysts said despite the 15% increase in operating costs in Q1 2021, the operating cost margin declined by 100 basis points from 48% in Q1 2020 to 47% in Q1 2021.
As a result, WSTC explained that earnings before interest tax, depreciation and amortisation (EBITDA) jumped by 19% year on year from N171.77 billion in Q1 2020 to N204.55 billion.
Amidst Nigeria’s low-interest-rate environment, the Telco’s net finance cost declined by 11% year on year from N33.67 billion in Q1 2020 to N30.12 billion.
Analysts said this happened despite a 26% year-on-year increase in average total borrowings from N948.88 billion as of Q1 2020 to N1.19 trillion as of Q1 2021.
The cost savings recorded from the lower net finance cost incurred resulted in a 34% expansion of profit before tax from N76.91 billion in Q1 2020 to N102.99 billion in Q1 2021, WSTC Securities explained. Down the line, MTN Nigeria’s delivered a 43% after-tax profit growth year on year, rising from N51.74 billion in Q1 2020 to N73.75 billion in Q1 2021.
In the equity report, analysts at WSTC Securities said the higher rate of increase in profit after tax was largely due to a lower effective tax rate in Q1 2021.
Resilient Topline Performance despite Regulatory Bottlenecks
The investment firm saw that revenue outturn as resilient when regulatory bottlenecks are put into consideration. On a year-to-date basis, the Group recorded a 7% drop in total mobile subscribers due to the effects of customer churn and restrictions on new SIM sales and activation, arising from changes in SIM registration regulations.
Total subscribers fell from 76.50 million as of the financial year 2020 to 71.50 million as of Q1 2021 following the industry’s regulatory demands for SIM-NIN registration.
However, on a year-on-year basis, the Group’s total mobile subscribers grew by 4% year on year from 68.50 million in Q1 2020 to 71.50 million in Q1 2021. As of April 2021, the Group said in a statement that 50% of its mobile subscribers have submitted their National Identity Number (NIN).
Meanwhile, MTN Nigeria’s earnings were also supported by a 9% increase in voice traffic and a slight increase in mobile subscribers as voice revenue grew by 8% from N194.04 billion in Q1 2020 to N208.62 billion in Q1 2021.
Strong Momentum Continues to Drive Data Revenue
Analysts said the combination of an improved 4G penetration, increased data usage, and traffic, the Group’s data revenue grew by 43% from N74.01 billion in Q1 2020 to N105.70 billion in Q1 2021. According to the management, its 4G network coverage increased by 200 basis points from 60% as of the financial year 2020 to 62% as of Q1 2021.
Recent Corporate Developments
Recently, MTN Nigeria Plc. announced that it has acquired an additional 10MHz spectrum in the 800MHz band from Intercellular Nigeria Limited. WSTC believes that the acquisition is expected to enable the Group to deliver an improved service speed to consumers, and thus, drive accelerated growth.
Also in April, the Group announced its successful issuance of Series 3 and 4 Commercial Papers. The aggregate CP issuance stood at N73.51 billion across both tenors. Also, the Group announced that it would issue a Series 1, 7-year fixed-rate bond under a debut N200 billion Bond Issuance Programme.
Analysts said the bond issuance was completed in May 2021, with the Group raising N100 billion at 13.00%.
The Group approved the appointment of Ms. Tsholofelo as a Non-Executive Director effective on May 3, 2021. Ms. Molefe was appointed as the Chief Financial Officer of MTN Group SA Limited in April 2021.
She held positions of Deputy Chief Financial Officer and Group Risk and Compliance Officer, prior to her appointment as MTN Group SA Chief Financial Officer.
Future earnings estimate
“We raised our financial year 2021 revenue forecast by 2% year on year to N1.58 trillion from N1.55 trillion previously estimated. We also raised profit after tax forecast to N268.83 billion from N254.71 billion.
“The basis of our upgrades is due to our expectations of a lower net finance cost for 2021, given the recent capital raising exercise.
“We also expect to see improved operating efficiency in subsequent quarters. In addition, we posit higher earnings capacity, on the back of increased 4G penetration. We also expect to see a normalisation of the initial impact of lower subscriber additions due to the SIM/NIN registration.
“Based on the released Q1 2021 earnings result, and our future growth expectations, we upgraded our fair value of MTNN to N200.34 from N194.64”, WSTC Securities stated.
The investment firm rated the stock a buy, noted that the ticker offers 32% total return – comprises 25% price return and 7% dividend yield.
WSTC Analysts Raise MTN Nigeria’s Profit Expectation, Target Price
