Thursday, December 09, 2021/01:00pm
/ Adaeze Nwachukwu, Proshare Research/ Header Image Credit: MTN Nigeria
Getting a piece of the MTN Nigeria equity pie is a hot button investment move that has spurred new investment actions as investors once shut out of the telco's equity structure have been given an opportunity to diversify their shareholdings into the voice and data service carrier. The recent sale by way of a public offer of 575m units of shares of the company has created new asset class opportunities for local investors.
The company's recent Equity Shelf Programme (The Programme) aims to sell 2.81bn ordinary units of shares for N0.02 each, valued at N478.2bn, through a series of offers for sale, the first of which is now open. The share price of Nigeria's second-largest listed company (as of December 6, 2021) fell by -12.11% at the beginning of the week, responding to the announcement of the retail offer for sale at N169 per share.
The 575m units on offer is the first in a series of sales under the Equity Shelf Programme. The continental telco says it would sell down its holding in the Nigerian company to 64% from 78% thereby improving Nigerian ownership in the local operation. MTN Nigeria was listed on the NGX (the NSE) at N90 in 2019 and has since given a return of +85.56% since its listing.
Local analysts note that the share sales process is what the industry calls an offer for sale which differs from an offer for subscription. While an offer for sale would not involve a dilution of shares of a company an offer for subscription would reduce future earnings per share (see illustration 1 below). Although, in the case of MTN Nigeria's offer, the Selling Shareholder - MTN International (Mauritius) Limited's liquidity and earnings are likely to improve.
Illustration 1: Offer for Sale & Offer for Subscription
Local equity traders have noted that several investors, particularly bargain hunters tend to make hasty decisions without considering long-term financial goals, corporate fundamentals, company governance structure, and strategic priorities. Investment advisers insist that these considerations are vital to making the equity purchase decision.
Further considerations that could influence raiding the investors piggy bank and deciding to buy MTN Nigeria's shares include Nigeria's large pool of voice and data service off takers with huge data service headroom, a young and upwardly mobile generation Y and Z (Nigeria has one of the world's youngest populations), and increasingly inclusive rural inhabitants (see illustration 2 below).
Illustration 2: Underlying Considerations
Investment advisers equally note that MTN Nigeria has the highest credit rating (AAA) of rating agency, GCR, and was the first listed company on the Nigerian Exchange (NGX) to record a revenue of N1trn which was reported in the company's full-year (FY) 2018 audited result. Growth in the Telcos revenue and earnings has been on an upward trajectory, this trend has also been seen in the company's total liabilities. The gearing ratio (financial liabilities-to-total capital) shows that the bulk of the capital structure of the telco is made up of debt (suggesting a high return on average equity (ROaE) (see table 1 below).
Table 1: Dashboard of a Telco
On the bright side for local investors is the fact that the Equity Shelf Programme is expected to increase the company's free float from its current level of 21.2% to 35% which would support the creation of a liquid market, that is increasing the amount of free float. The proceed of any offer for sale under the Programme will be disbursed to the Selling Shareholder (MTN International) after removing transaction expenses.
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