MTN Nigeria Earnings Review 9M 2019: Strong Operations but Leverage Casts a Shadow

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  • Increased revenues by 12.0% y/y growth
  • Jump in net finance costs by 113.4% y/y
  • Solid performance, good buy
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Data revenue surge as voice remains sturdy

In its recently released 9M 2019 financials, MTNN reported a 12.0% y/y growth in Revenue to N856.5bn in 9M 2019 from N764.5bn in 9M 2018. The growth in Revenue was driven by double-digit growth in both voice (up 10.1% y/y) and data Revenue (up 34.9% y/y). The growth in data was driven by recent data bundle repricing and improved 4G coverage. Furthermore, the company added 1.6m smartphones to its internet coverage while active data subscribers grew 7.6% to 22.3m subscribers driving data traffic growth of 68.9%. Voice Revenue climbed higher on the back of 0.2% q/q growth in voice subscriber base to 61.6m subscribers.

Best in class

EBITDA margin MTNN’s 9M 2019 performance saw it take the title of the most efficient company by EBITDA margin listed on the Nigerian Stock Exchange. MTNN posted EBITDA margin of 53.7% in 9M 2019, a 10.5ppts rise from 9M 2018’s 43.2%. EBITDA grew 39.3% y/y to N460.1bn in 9M 2019 from N330.2bn in 9M 2018. The growth in EBITDA came on the back of slower growth in Operating Expenses (up 8.7% y/y to N396.4bn in 9M 2019) compared to the growth in Revenue. Markedly, Direct Network Costs declined 21.7% y/y to N177.9bn due to a steep 29.2% y/y decline in BTS (Base Transceiver Station) lease payments. Other expense line items that declined include Value Added Service Costs (down 36.8% y/y) and Roaming Costs (down 13.4% y/y). On the other hand, we observed a steep increase in Cost of Handsets and other accessories (up 70.9% y/y) as the company continues to roll out smartphones in a bid to drive up smartphone penetration which stood at 41.7% according to the company.

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Bump in finance costs; the sticking point

MTNN recorded a 113.4% y/y jump in Net Finance Costs to N74.2bn in 9M 2019 from N34.8bn in 9M 2018. This was driven by weaker Finance Income (down 3.8% y/y) and a significant rise in Finance Costs (up 72.8% y/y). We observed the company took on a new lease on which it made interest payments of N51.2bn in 9M 2019. This caused the unexpected deterioration in a leverage position. Consequently, Profit before Tax grew at a slower pace compared to EBITDA, growing by 24.0% y/y to N212.0bn in 9M 2019 from N171.0bn in 9M 2018. A lower effective tax rate of 30.0% drove slower growth in Tax expense and consequently, Net Income climbed 28.9% y/y to N148.3bn for 9M 2019. Earnings per Share printed at N7.29/s in 9M 2019 compared to N5.65/s in 9M 2018.

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Overall view – solid operations; good buy but leverage is a key drag

Overall, the company’s performance continues to echo more optimism with all key performance indicators trending higher. The company’s improving efficiency would continue to sustain growth going forward while underlying market potential would continue to boost Revenue. Nevertheless, we remain uncomfortable with the increased leverage taken on by the company through the lease. We expect this to sustain slower growth in bottom-line relative to EBITDA and Operating Profit growth. Overall, solid company; good buy.

MTN Nigeria PLC Earnings Highlights 9M 2019

MTN Nigeria Earnings Review 9M 2019: Strong Operations but Leverage Casts a Shadow

FSDH Research
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