MTN’s Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020

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Revenue lines remain strong driven by data growth

MTN N in its recently released Q1 2020 result reported a 16.7% y/y growth in Revenue to N329.2bn from N282.1bn in Q1 2019. On a q/q basis, Revenue growth was modest at 5.1% q/q growth from N313.3bn in Q4 2019. Across key Revenue lines, the Q1 2020 Revenue growth was driven by higher Data revenue (+58.9% y/y to N74.0bn), Voice revenue (+6.1% y/y to N194.0bn), Value added services (+33.9% y/y to N11.4bn) and Digital revenue (+12.1% y/y to N9.3bn). On an annualised basis, reported Q1 Revenue printed ahead of our forecast by 1.7% due to faster recovery in Digital service revenue and higher Data revenue growth. The growth in Revenue was supported by improved operational KPIs as mobile subscribers increased by 4.2 million subscribers while Data users increased by 1.7m subscribers. In addition, voice traffic was higher by 7.2% y/y while data traffic growth surged by 130.4% y/y. In line with expectations, we believe the data traffic growth was driven by increased user rate due to the stay at home measures to curb the COVID-19 outbreak.

Currency devaluation drives Operating costs higher

Total Operating expenses climbed higher by 18.2% y/y to N155.7bn in Q1 2020 from N131.7bn in Q1 2019 driven by higher Direct Network Operating Costs (+ 20.8% y/y), discounts & commission (+15.7% y/y), Interconnect costs (+7.6%), Accessories cost (+64.3%) and Employee benefits cost (+33.8%). According to the company, the recently implemented naira devaluation impacted significantly on its dollar cost which contributes to a decent proportion of the total cost. In addition, the higher surge in Accessories cost remains due to the company’s strong drive to improve smartphone penetration rate which stood at 42.6% as at Q1 2020. Despite the faster growth in Operating expenses, EBITDA growth remained healthy in Q1 2020, growing by 15.3% y/y to N173.5bn from N150.4bn. However, EBITDA margin was pressured lower, down 0.6ppts y/y to 52.7% in Q1 2020.

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Bump in finance costs the sticking point

MTNN recorded a 47.2% y/y jump in Net Finance Costs to N35.0bn in Q1 2020 from N23.8bn in Q1 2019. This was driven by weaker Finance Income (down 34.5% y/y to N5.7bn) and a significant rise in Finance Costs (up 25.3% y/y to N40.7bn). The growth in Finance cost was driven by higher Interest expense on borrowings (+103.5% y/y) & lease liabilities (+10.8% y/y) and Foreign exchange loss (+39.9% y/y). The spike in Interest expense on borrowings was primarily driven by devaluation which impacted the company’s interest payments on its FCY loans which stood at US$84.9m at the end of Q1 2020. Nevertheless, Pre-tax profits grew by 8.9% y/y to N76.3bn in Q1 2020 from N70.1bn in Q1 2019. Higher Effective tax rate (Q1 2020 – 33.0% vs. Q1 2019 – 30.9%) placed further strain on Net Income which grew 5.6% y/y to N51.1bn in Q1 2020 from N48.4bn in Q1 2019. Earnings per Share printed at N2.51/s for Q1 2020. Annualised Q1 2020 EPS of N10.10/s prints below our forecast of N11.12/s for 2020e due to higher than expected Interest expense and Effective tax rate.

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Outlook: 2020 Forecasts remain on track despite emerging headwinds

Revenue growth expected to remain impressive

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For the rest of the year, we remain confident in the ability of MTN N to sustain its revenue growth. The company stated that the COVID-19 lockdown measure is expected to weigh on voice traffic but expects it to be offset by increased data traffic as users resort to using of internet for telecommuting, entertainment and social media engagements. Furthermore, Value Added Services continues to gain significant traction as MTN Xtratime and the launch of MusicTime continue to drive growth. Thus, we retain our Revenue forecast of N1.3tn which remains largely in line with annualized Q1 2020 performance.

Profit lines forecast retained but devaluation, finance cost remain key risks

We remain concerned about the impact of further devaluation on Operating expenses for MTN N. While the company has not stated the percentage of its costs that are dollar-based, it highlighted that it is affecting Opex management significantly. Nevertheless, we have modeled this impact in our model with Opex (excluding depreciation) to Revenue ratio forecasted at 47.2% (Q1 2020 – 47.3%). Thus, we retain our Operating expenses forecast. In addition, we retain our key profit lines forecast as we watch developments on the company’s Interest expenses as well as Tax expenses.

Target price & BUY rating retained

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Notably, since our last note, MTN N has appreciated 12.6% to N112/s (as at 30 Apr 2020). The company’s fundamentals across Revenue & Net Income growth, Return on Equity, and Operating Efficiency remains very healthy with high leverage the only sticking point. Furthermore, MTN N trades at a steep 49.6% discount to our EM peer average PE ratio. Thus, we retain our BUY recommendation on the stock with a target price of N177.11/s which implies an upside of 58.1% to the closing price of N112.0/s as at 30 April 2020.

MTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand SpurMTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand SpurMTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand Spur

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MTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand SpurMTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand Spur

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MTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand SpurMTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand Spur

Latest News

New entrant AECO Energy launches business innovation to deliver ‘last mile of value chain’ to Singapore’s maturing open electricity market

  • AECO Energy announces the launch of its operations in Singapore to provide innovation to the open electricity market for businesses with generation 2.0 of its technology and service offerings.
  • The company will introduce three solutions as part of its initial portfolio, customisable to specific business needs.
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SINGAPORE - Media OutReach - 13 April 2021 - AECO Energy, a new entrant to Singapore's electricity sector, has today announced the launch of its operations. AECO Energy will be the first-of-its kind energy technology and services company aimed at innovating customer-centric offerings in electricity and renewable energy markets.

With over 12 years of experience in delivering open market electricity services and solutions to businesses in Australia under the Power Choice brand, AECO Energy is bringing its second generation of services and technology to Singapore for the first time. AECO's second generation delivers on two major offerings.

Firstly, AECO delivers the 'last mile' of value in Singapore Open Electricity Market (OEM) value chain by providing innovative services to assist businesses to manage, plan and make better buying decisions.

AECO is all about enabling increased profits for businesses. AECO has a customer-centric mission to use its low-cost proven technology and expert-led services to enable better business decisions within a complex electricity market with multiple providers and opaque medium- to long-term pricing information. This comes against the backdrop of Singapore's maturing OEM, which gives businesses and consumers the autonomy to buy and choose their electricity providers - the freedom to choose.

AECO Energy's technology platform, MarketPro™ with its unique, electricity futures market simulator Rate Watch™, delivers business and electricity efficiency and empowers businesses through relevant and timely pricing information, while also helping Singapore businesses make better buying decisions via automated tenders and reverse auctions. Moreover, for businesses who do not have the capability and capacity to manage and purchase its own electricity, AECO Energy Portfolio™ delivers scalable buying power with a fully-managed contract management and purchasing aggregation service for small, medium and large businesses.

Alan Jones, CEO, Chairman & Founder, AECO Energy, said: "We are incredibly excited and humbled to be joining Singapore's dynamic energy scene with our low-cost, high-value products and services. Our mission is clear: just like Amazon is revolutionising the 'last mile' of product supply chains with its same day delivery, we are also delivering the 'last mile' of the value chain in Singapore's OEM that enables more businesses better purchasing decisions, more business profitability and growing all of Singapore's economy."

Secondly, with SGX-listed entities, enterprises and multinational corporations (MNCs)' increasing emphasis on sustainability, AECO (through its SustainPro™ offering) will bring for the first-time in Singapore the benefit of AECO's direct relationship with generators of International Renewable Certificates (I-REC). This enables Southeast Asian markets the benefit of medium- to long-term low-cost and structured REC solutions to meet renewable energy targets and sustainability goals. This translates to more profits by providing more predictable costs for businesses in meeting their sustainability and renewable energy goals.

"As a specialised company, unburdened with corporate overheads and distractions from Singapore's local market participants, we can offer companies who are based anywhere in Southeast Asia, sustainability and renewable energy solutions that span markets and countries at a lower and more predictable price. We are honoured to play our part to bring sustainability and increased renewable energy throughout the world and to do so while benefiting our customers' cost structures," continued Mr. Jones.

AECO Energy is introducing three offerings as part of its electricity management solutions:

  • MarketPro™: Businesses can optimise costs and seize market opportunities with exclusive access to customised market price information through AECO Energy's integrated online procurement and management platform equipped with Rate Watch™, a market simulation and automated procurement technology from as low as SGD $149 per month.
  • Portfolio™: Businesses get exclusive access to economies of scale with better buying power through professional and expert-managed energy procurement portfolios overseen by AECO Energy experts. This allows enterprises to focus on their core business while AECO Energy experts will fully-manage their electricity contracts and make better buying decisions on their behalf from as low as an additional SGD $74 per month.
  • SustainPro™: SustainPro focuses on helping businesses meet their sustainability goals at the lowest cost. AECO Energy offers lower costs on the procurement of Renewable Energy Certificates (RECs) and tailored REC supply solutions designed to meet transition needs towards a more sustainable business.

"With the understanding that business needs are unique for every organisation, our energy experts will work closely with customers here in Singapore to help them reduce costs, drive efficiency and make better buying decisions. By providing technology-enabled, insights-driven energy technology solutions, we want to create a profound impact on our customers' businesses to better position them for sustainable growth in the long-term," concluded Alan.


About AECO Energy:

Based in Singapore, the AECO Pacific Group owns and operates the Power Choice and AECO Energy brands. A leading pioneer for more than 12 years in electricity brokerage and consulting services in Asia Pacific focusing on deregulated electricity markets, AECO Pacific helps businesses with electricity procurement and management backed by market intelligence. Transforming and saving businesses more, AECO's combined experience in energy leadership and innovative technology solutions remain unmatched in dynamic and changing energy markets. For more information, visit https://powerchoice.com.au/ and https://aecoenergy.sg/.

MTN's Revenue Growth Remains Sturdy Amidst Cost Concerns In Q1 2020 - Brand Spur
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