Recently, MTN Nigeria (MTNN) published its Q1-19 earnings scorecard and held an Analyst conference ahead of its planned listing by introduction on the Nigerian Stock Exchange (NSE) before the end of H1-19. The company is ahead of the competition with 60.3 million subscribers (c.25% of the total number of subscribers for the Group), 20.4 million active data users and fibre network coverage of over 25,800km.

These are some of the key takeaways from the financial result and analyst presentation.

Highlights

  • MTNN is the undisputed market leader in the Nigerian telecommunication market. According to Nigerian Communications Commission (NCC), the firm has the largest market share by subscriber base, with of c.38.9% market share as at Dec-18 while Globacom (26.2%), Airtel (25.6%) and 9mobile (9.2%) follows in that order.
  • By revenue, MTNN accounts c.50% to the total revenue generated in the Nigerian telecommunication industry, majorly by Voice which contributes c. 75.4% to the top line in 2018 while Data (14.9%), Digital (2.6%), Fintech (2.8%) and Other (4.2%) accounts for the rest.
  • In Q1-19, Revenue increased 13.2%y/y driven by a 32.4% increase in Data revenue (thanks to an expansion in smartphone penetration, improved network quality and increasing number of subscribers) – and 12.7% uptick in Voice revenue (though affected by the general slowdown in economic activities during the election period).
  • PBT and PAT surged, up 44.1% and 50.4% to settle at N70.1bn and N48.4bn respectively despite the uptick recorded in finance cost (up 53.8% to N23.8bn). The EBITDA margin for the company improved to 53.3% for the period buoyed by revenue growth and effective cost management.
  • MTNN’s ongoing CAPEX plan is focused on the network, specifically 4G rollout in major cities (current 4G coverage is 24% covering Lagos, Abuja, Kano, and P/Harcourt) across the country to improve network quality and 3G densification and expansion countrywide to improve availability, reliability, data speed, and overall user experience.
  • MTNN has historically maintained moderate leverage as Net Debt/ EBITDA ratio currently stands at 0.40x and Interest Coverage of 15.4x implying that the headroom for debt finance is high. As such, the Telco is currently in the process of arranging LCY financing to fund CAPEX.
  • Also, it has historically aimed to maximize dividends. In the medium term, MTNN targets a dividend payout ratio of at least 80% of its distributable net income subject to board discretion.
  • As touted in its Q1-19 investor presentation, MTNN has a “strong position in the right market”. The demographics of the Nigerian market – in terms of huge potential for population growth, mobile phone penetration, and financial inclusion rates – portends opportunities for MTNN to continue to expand in its biggest market. The company’s strategic intent is hinged on consolidating on its voice leadership and expanding its data, digital and FinTech (leveraging PSB license) footprints.
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Spotlight on the Listing arrangement:

  • Reports surrounding the listing of MTNN has been around since 2016 when the company ran into regulatory loggerheads with the Nigerian Authorities. However, Telecom giant has ramped-up efforts to bring its proposed listing to fruition so far in 2019.
  • In April-19, the company became a Public Limited Liability Company (PLC) and subsequently registered a total of 20.4bn ordinary shares of 2 kobo share with the Securities and Exchange Commission (SEC) May-2019, in a move to meet the Nigerian Stock Exchange’s minimum listing requirement of 20.0% public (free) float.
  • Notably, MTNN is yet to come out with the details of the proposed listing. Hence, we are yet to get clarification on the nominal value of the share which traditionally should be 50kobo rather than the 2kobo/share reported in the media. Nevertheless, a snippet from the Chairman’s statement indicated that the Telco is planning to List by the way of Introduction.
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Our Opinion

  • A While we imagine that listing by introduction should make way for an Initial Public Offering (IPO) later, we highlight that fact that the proposed listing by introduction implies that the company is not raising capital but rather listing the existing shares of current shareholders to provide liquidity and allow for price discovery.
  • Hence, this implies that new or interested investors can only benefit if current shareholders are willing to exit or sell a portion of their stake.
  • While the news of the listing by Introduction may come as a disappointment to market participants who had expected the company to issue new shares, we are of the opinion that this should pave way for an eventual IPO.
  • Overall, the listing is anticipated to lift the overall market capitalization on the NSE and may trigger further primary market activities in the telecom space. Additionally, we believe investors will be looking to company’s free float as this will go a long way in determining the level of activity at the secondary market, going forward.
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United Capital Plc Research (UCR)

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