MTN Nigeria - Banking on High Speed Mobile Growth

Thursday, May 30, 2019  02:33 PM / By FBNQuest Research

MTN Nigeria in pole position to tap mobile subscriber growth

With around 173 million subscribers, Nigeria’s mobile penetration has reached a peak of 91%. However, viewed from the context of African peers such as Kenya and South Africa with penetration levels of 100% and 173% respectively, and unique mobile subscribers, the country’s penetration level still has room for expansion. MTN Nigeria’s unrivalled network infrastructure and coverage put it in pole position to benefit from net additions to the sector’s subscriber base which is expected to grow to 203 million by 2023.

Improving macro conditions positive for voice and data traffic

We expect Nigeria’s GDP to grow by 2.6% in 2019E and a further 2.8% in 2020E. We believe that improving macroeconomic conditions (underpinned by both non-oil and oil) will help rebuild household wallets and translate to growth in data and voice traffic for network operators.

Data on the rise, voice in slowdown

Although we expect the growth in voice revenue to decelerate to high-single-digits in the medium term as mobile penetration reaches saturation levels, we expect the strong growth in data revenue to more than compensate. We see data’s share of revenue increasing to c.20% by 2021, driven by high-teens to 20% average annual growth over the same period. However, with the imminent commencement of operations of payment service banks, we see upside risks to our data growth forecasts. In the medium term, MTNN’s data growth could mirror Safaricom’s 40%+ y/y growth.

Pull back in shares presents an opportunity

We value MTNN shares at N148.7 per share based on a discounted cash flow (DCF) model. Although the shares rallied strongly after listing to a peak of N149.0, they have shed -11.0% since. Our price target implies a 2019E EV/EBITDA multiple of 5.1x or a 10% discount to the 5.7x multiple that emerging and frontier market peers are trading on. At current levels, the shares are trading on 2019E EV/EBITDA and P/E multiples of 4.6x and 14.0x respectively. Our price target implies a 12% upside potential. As such, we rate the shares Neutral. The main risks to our thesis include a deterioration of the regulatory landscape, a weaker macroeconomic environment and pricing pressure from competition.         

Download Full PDF Report Here – MTN Initiation Report

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