MTN Nigeria: Solid Growth Underpins Industry Fundamentals

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MTN Nigeria Plc recently released its Q1 2021 financial performance. The Group reported a 17% YoY revenue growth from N329.17bn in Q1 2020 to N385.32bn in Q1 2021.

MTN Nigeria’s topline growth was driven by data revenue growth. Specifically, data revenue rose by 43% YoY from N74.01bn in Q1 2020 to N105.70bn in Q1 2021.

Hence, the revenue growth from the data accounted for 56% of the Group’s total revenue growth in Q1 2021. Operating cost grew by 15% YoY from N157.40bn in Q1 2020 to N180.77bn in Q1 2021.

The major cost drivers during the period were direct networking costs (+30% YoY from N72.11bn to N93.87bn), interconnect and roaming costs (+11% YoY from N28.02bn to N31.18bn), and discounts & commissions (+18% YoY from N16.05bn to N18.91bn).

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, EBITDA grew by 19% YoY from N171.77bn in Q1 2020 to N204.55bn in Q1 2021.

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Net finance cost declined by 11% YoY from N33.67bn in Q1 2020 to N30.12bn in Q1 2021, despite a 26% YoY increase in average total borrowings from N948.88bn as of Q1 2020 to N1.19trn 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 N76.91bn in Q1 2020 to N102.99bn in Q1 2021. Profit after tax grew further, by 43% YoY from N51.74bn in Q1 2020 to N73.75bn in Q1 2021. 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

On a year-to-date basis, the Group recorded a 7% decline (from 76.50mn as of FY 2020 to 71.50mn as of Q1 2021) 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.

However, on a year-on-year basis, the Group’s total mobile subscribers grew by 4% YoY from 68.50mn in Q1 2020 to 71.50mn in Q1 2021. The Group stated that 50% of its mobile subscribers have submitted their National Identity Number (NIN) as of April 30, 2021. Supported by a 9% increase in voice traffic and a slight increase in mobile subscribers (on a YoY basis), voice revenue grew by 8% YoY from N194.04bn in Q1 2020 to N208.62bn in Q1 2021.

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Strong Momentum Continues to Drive Data Revenue

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The combination of an improved 4G penetration, increased data usage and traffic, the Group’s data revenue grew by 43% YoY from N74.01bn in Q1 2020 to N105.70bn in Q1 2021. According to the management, its 4G network coverage increased by 200 basis points from 60% as of FY 2020 to 62% as of Q1 2021.

Recent Corporate Developments

On March 12, 2021, the Group announced that it acquired an additional 10MHz spectrum in the 800MHz band from Intercellular Nigeria Limited. The acquisition is expected to enable MTN Nigeria to deliver improved service speed to consumers, and thus, drive accelerated growth.

On April 8, 2021, the Group announced of its successful issuance of Series 3 and 4 Commercial Papers. The aggregate CP issuance stood at N73.51bn across both tenors. Also, the Group announced that it would issue a Series 1, 7-year fixed rare bond under a debut N200bn Bond Issuance Programme.

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The bond issuance was completed in May 2021, with the Group raising N100bn 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.

Outlook

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We raised our FY 2021 revenue forecast by 2% YoY to N1.58trn (previous: N1.55trn). We also raised our FY 2021 profit after tax forecast to N268.83bn (previous: N254.71bn). The basis of our upgrades is due to our expectations of a lower net finance cost for FY 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 normalization 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 (previous: N194.64). At the stock’s current market price, the stock trades at a 12.11x forward P/E, compared to our 15.17x justified P/E. We believe that the stock offers a 32% total return (price return: 25%; dividend yield 7%).

Hence, we maintain our BUY recommendation.

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