MTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line

Must Read

How To Block Your Bank Account And SIM Card In Case Of Emergency

Losing your phone and wallet or having them stolen can be very frustrating. However, in case that happens to...

FG, States, LGAs share N528.39bn FAAC allocation in Jan 2021

The Federation Account Allocation Committee (FAAC) disbursed the sum of N619.34bn to the three tiers of government in December...

List of United Bank for Africa (UBA) Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is held. The sort...
- Advertisement -

…Impressive Top-line Growth In An Unprecedented Year

MTN Nigeria ended the year on a strong note, delivering an impressive topline performance, slightly above our forecast (+1.61%). Service revenue grew by 14.69% YoY to NGN1,339.03bn, led by growth in data (+51.49% YoY) and voice (+5.64% YoY), further complemented by a surge in fintech revenue (+27.18% YoY).

MTN shrugged off the early impact of the suspension of new SIM registration in late December, as it added 12.2 million customers in 2020, bringing its total customer
base to 76.5 million. As we rightly expected, the strong growth in data revenue was prompted by the COVID-19 lockdown, which led to a combination of increased active data users (+29.37% YoY) and data usage per user.

The company supported this increased demand by expanding its network capacity, 4G penetration, and coverage in rural areas, with the company’s 4G population coverage now at 60% (compared to 44% in 2019FY).

We like the growth in the company’s Fintech segment, as revenue rose by 27.18% YoY. The company expanded its MoMo agent network, registering over 280,000 (+159.26%YoY) sub-agents during the year. Fintech subscribers increased to 4.7 million from about 1 million in the prior period, while transaction volume rose to 51.5 million (+134.09% YoY).

- Advertisement -

READ ALSO: MTN Group Appoints New Executive To Drive Its Strategic Repositioning

We expect growth in revenue to continue to be led by mobile data and fintech revenue, driven by a robust subscriber base, continuous 4G network rollouts and increased rural connectivity. Nonetheless, we view the current suspension of new subscriber additions as a dampener on topline expectations, particularly if the stalemate prolongs beyond the first half of the year.

Increased Operating Expenses Weigh Down Margins

Brand Spur Nigeria understands that there was an 8.52% growth in operating profit, on the back of a 9.71% increase in EBITDA. The growth in EBITDA reflects the company’s strong cash generation, delivering a healthy free cash flow of NGN387.1bn (ex IFRS 16 adjustments). However, the EBITDA margin dipped by 250bps to 50.93%, largely due to heightened cost pressures.

Read Also:  Digital Wallet Users To Exceed 4.4 Billion By 2025, As Mobile Drives Digital Payments' Revolution
- Advertisement -

Operating expenses grew by 21.28% YoY, attributable to the roll-out of new sites, the 23.86% adjustment in the official exchange rate which triggered higher lease rental
costs, and a 2.5% increase in VAT. Other factors that impacted OPEX are the change in the treatment of non-recoverable VAT on lease payment, and other one-off items – such as the donation to the coalition against COVID-19 in April 2020 and costs of Personal Protective Equipment (PPE).

While we expect to OPEX threatened by additional site rollouts and the effect of further devaluation on leases, Management has guided at ongoing efforts towards optimization of its cost structure, supported by a non-recurrence of one-off cost items in 2021, which should help preserve margins.

Higher Finance Costs Add to Bottomline Pressures

Read Also:  Post a Breakup note to your unfair partner to win Iphone X From Sterling Bank

The company’s CAPEX for the year recovered from a slow start to settle at NGN298.63bn (+43.37%YoY), with CAPEX intensity increasing by 80bps to 22.18%. The company supported this with additional borrowings of NGN143.68bn, raising its stock of debt by 26.33% to NGN521.15bn.

- Advertisement -

This triggered an increase in net finance cost by 25.40% to NGN127.84bn, which added further pressure on net margins.

As a result, net margin dipped by 613bps to 15.24%, with PBT and PAT increasing by only 2.61% YoY and 0.95% YoY, to NGN298.87bn and NGN205.21bn, respectively. Management has expressed ongoing plans at tapping the debt markets in 2021, which should help diversify funding sources and lower funding costs. Also, the rebounding yield environment should support interest income.

Recommendation

While we expect top-line performance to remain robust, we continue to keep an eye on the bottom line and the possible threats to the bottom line.

We forecasted a 2021 EPS of 11.15 and applied a Target P/E ratio of 17.20x to arrive at our Target Price of NGN191.73.

This represents an upside potential of the upside from its current price, we, therefore, recommend a BUY on the counter.

- Advertisement -
MTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand SpurMTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

MTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand SpurMTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand Spur

Latest News

Can Nigeria Achieve Sugar Self-sufficiency?

Nigeria's sugar industry dates back to the 1960s. Domestic production, however, only supplied about c.2.8% of national sugar consumption in...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -MTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand SpurMTN Nigeria — Marginal Growth In Earnings Despite Impressive Top-line - Brand Spur