Company Update - MTN: Nigeria's Rising Falcon


Thursday, December 02, 2021 / 03:12 PM / by United Capital Research / Header Image Credit: MTN Nigeria


Event: MTN Nigeria Communications Plc (MTNN) recently announced a public offer to retail investors for the sale of up to 575 million shares held by MTN Group. The offer will be priced at N169.00/s which represents a 1.2% discount to Wednesday's closing price of N171.0/s. The transaction would be the first step toward the Group's overall goal of selling 14.0% (2.85 billion units) of its shareholdings to Nigerian investors, particularly retail investors. The initial sale of 575 million units represents c.20.2% of the total 2.85 billion shares intended for sale by MTN Group which is part of a scheme to increase retail shareholding in the company.

The question on the mind of investors is whether it is worth attempting to load on MTNN shares at the offer price of N169/s. Based on our analysis, we strongly believe MTNN is a "must-have" in the portfolios of retail clients. Below we present our arguments in favour of this standpoint:

Strong business foundations: MTNN is the largest telecommunications service provider in Nigeria by number of customers, with approximately 80.8 million mobile subscribers in Nigeria as of 31 December 2020 and a market share of approximately 39.0% (by number of subscribers) as of Sep-2021. The telco is Nigeria's market leader across voice and data subscriptions. In addition, the company delivers 3G and 4G coverage to 81.6% and 65.1% of the Nigerian population, respectively, and has a 4G LTE spectrum edge over its competitors, as the only GSM operator with granted 700MHz and 800MHz spectrum licenses. On the mobile financial services side, the telco applied for and received approval-in-principle for Payment Service Banking (PSB) license from the Central Bank of Nigeria.

Data revenue remains a goldmine: Data revenue is expected to continue to accelerate as internet penetration and smartphone adoption is still far-off potential adoption as well as when compared to more developed economies. The network's 4G coverage improved to 69.2% at the end of Sep-2021 and is expected to grow rapidly in the near future given the initiative to convert 3G SIM cards to 4G SIM cards. Also, the company continues to invest aggressively in its 4G infrastructure in bid to improve coverage and bandwidth. Lastly, MTNN has conducted successful 5G network demonstrations using temporary spectrum allocated by the NCC. We believe this gives the company an edge in the deployment and provision of 5G services, which is an enormous growth frontier.
Payment service bank prospects: Following the Approval in Principle (AIP) for its proposed MOMO Payment Service Bank, MTNN is poised to offer banking services like as deposit acceptance, remittances, payment processing, and mobile wallets, which we expect to stimulate exponential growth in its fintech business. The size of MTNN's user base gives it an advantage in the mobile money space. As a result, we anticipate that MTNN will emerge as leader in the mobile money market.

Financial performance: MTN Nigeria Plc's revenue has increased at a compound annual growth rate (CAGR) of 14.1% over the last five years (2016-2020), growing from N794.0bn to N1.3tn. In 2020, the largest telecom operator's return on equity (ROE) increased to 127.0% from 111.0% in 2019, while earnings per share (EPS) increased to N10.08/s from N9.99/s. In 9M-2021, the telco's revenue grew by 23.6% y/y to N1.2 trillion, EPS grew by 52.6% to N10.82/s from N7.09/s. The company has also consistently grown dividends while ensuring both interim and final dividend distribution to investors. The is expected to be sustained over our forecast period of 2021E - 2025E.

Valuation: We believe MTNN remains an undervalued stock when compared to peers across Africa. Across our peer coverage, MTNN has a best-in-class ROE of 179.2%, compared to African peer average of 29.9%. In addition, it has the second fastest earnings growth on a TTM at 48.0%, significantly ahead of peer average of 8.2%. Despite this, MTNN trades at a 27.4% and 19.6% discount to peer average PE ratio (MTNN: 12.3x vs. Peer Average: 15.7x) and EV/EBITDA ratio (MTNN: 5.5x vs. Peer Average: 6.6x). This undervaluation is evident in our fair value forecast of N232.47/share, which implies an upside of 37.6% over the offer price of N169.0/s.
Cost advantage: Despite the thin discount between the offer price of N169.0/s and current market price of N171.0/s, taking up the offer for sale helps an investor acquire shares without significant market impact as well as avoiding transaction costs. To put in perspective, buying via the floor of the exchange will result in a WACC of c.N173.45/s (assuming a 1.0% brokerage commission), compared to the flat offer price of N169.0/s.

Proshare Nigeria Pvt. Ltd.

Related News on MTN

1.       MTN Nigeria Plc - Public Offer Shelf Prospectus

2.      NGX Remains Preferred Listing Destination, Facilitates MTN Public Offer

3.      MTN Nigeria Book Build Priced at NGN169, Launch Public Offer to Retail Investors

4.      SEC Nigeria Approves MTN 575m Units Offer for Sale, Opens November 23, 2021

5.      MTN Nigeria Q3 2021 Results Reflects Solid Fundamentals in the Medium Term

6.      MTNN in the News: Yesterday, Sale of Shares, Today, Approval in Principle

7.      MTN Receives An Approval in Principle for the Proposed MoMo Payment Service Bank Ltd

8.     MTN Nigeria Announces Issuance of N90bn Series II Fixed Rate Bonds Due 2031

9.      MTN Nigeria Notifies of Intention to Offer 575m Ordinary Shares for Sale to the Public

10.  MTN Nigeria Reports N220bn PAT in Q3 2021 Results;(SP:N175.60k)

11.   AfDB Group, MTN Sign $500,000 Grant Agreement to Study Women's Access to Financial Services

12.  MTN Nigeria Plans to Issue Up to N90bn Series II Bond Under its Debut N200bn Bond Issuance

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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