By IMPERIAL ASSET MANAGEMENT LTD Friday, JULY 26, 2109
Listing Preamble
MTN Nigeria(MTNN) Plc on Friday, July 26th, 2019 released its unaudited 6M-19 results for the period ended 30th June 2019. A close analysis of the results showed that both service revenue and net income posted a double-digitgrowth of12.12% and 34.81% to settle at ₦566.95 billion and ₦98.93 billion respectively compared to 6M-18 records. We note that the growth in service revenue was strongly driven by a spike in voice (+11.4%) and data revenues (+31.7%) year-on-year (y/y). Both indicators contributed 81.6% growth to total revenue. In context, voice revenue was strongly impacted by +5.7% increase in the subscribers’ based, relative stable tariffs and consumer sensitive promotions. For data, it was driven by a growing number of Nigerians acquiring new smartphones – 2.5 million of the total smartphones users in the period signed up on the company’s network y/y. Hence, it impacted on the customers’ data usage.
New products online to shape earnings going forward
We observed that MTNN’s other income heads, although at their evolving period have the capacity to spur greater impact on revenue going forward. For instance, Fintech recorded a growth of 21.2% y/y, although the figure was marginal in terms of contribution to revenue, its capacity ahead is unbounded. Note that MTNN is in cue to obtaining CBN’s license on mobile financial (money) services.
Moderatingcost lines through efficiency
Although MTNN trimmed its cost-to-sales ratio to 40.3% y/y from 49.9% OPEX went up by 9.7% (₦36.53bn) due to increase in the advertisement, sales, and promotions which are cardinal to the sector. Finance cost grew by 45.9%to settle at ₦59.09bn and was driven by interest on leases. Nevertheless, net debt rose 99% to ₦1.33bn indicating that the company is liquidity stable. We are encouraged by this outcome considering that it only on the 24th of May concluded the final installment payment of ₦55.0bn to the Nigerian Communication Commission (NCC) out of the ₦330.0bn negotiated settlement agreed by the two parties in respect of past operational fine.
Operational margins central to descent bottom line
MTNN posted an EBITDA margin of 53.8% (44.6% in 6M-18) buoyed by relative FX stability, growth in revenue and subdued cost management. As noted in paragraph one, net profit settled at ₦98.93 billion resulting in earnings per share (EPS)growth of 34.8% at 486kobo (6M-18 – 361kobo).
Dividend yield to brighten shareholders’ lot
The company’s Board of Directors has indicated to reward shareholders with a Dividend per share of 295kobo, translating to a dividend yield of 1.09% at the closing market price of ₦127.00 on Friday, 26th July 2019.
We retain a BUY recommendation on MTNN
In the light of the above, we maintain our estimates on MTNN with a discounted cash flow valuation methodology arrived at a target price of ₦160.00 posted in our Stock Recommendation on Monday, 22nd July 2019. This represents an upside potential of 25.98% of the current market price of ₦27.00.MTNN is currently trading at a P/E of 6.53x and has an ROAE of 97.66%.
Therefore, we retain a BUY recommendation on MTNN.
Prospect ahead
Nigerian demographics gives MTNN huge potential for growth, mobile phone penetration, and data expansion. All these portend opportunities for MTNN to continue to expand in the Nigerian market. Recall that the company secured Payment Service Bank (PSB) license in December 2018. This is expected to provide the company an opportunity to offer mobile money services to over 40-60 million people from Nigeria’s 99.6 million bankable adults and 36.9 million unbanked adults in the near term.
MTNN PLC 6M-JUNE 2019 Highlights (₦’mn)
Particulars 6M 2019 6M 2018 % Change
Statement of Comprehensive Income
Revenue 566,946 505,668 12.12
Cost of Sales -228,602 -252,783 -9.57
Operating Profit 190,403 136,601 39.39
Profit/Loss After Tax 98,931 73,385 34.81
EPS (N/Share) 4.86 3.61 34.63
Statement of Financial Position
Cash and Cash Equivalents 46,724 53,012 -11.86
Total Assets 1,480,817 746,885 98.27
Total Liabilities -1,379,055 -722,387 90.90
Total Equity 101,302 219,352 -53.82
Performance Ratios
PE Ratio 6.43x 8.67x
BVPS (₦) 4.98 10.78 -53.80
P/BV 25.12x 11.60x
ROAE (%) 97.66 33.46 191.87
ROAA (%) 6.68 7.79 -14.25
Corporate Action Announcement (Interim Dividend 2019)
Dividend (kobo) 295kobo
Qualification Date Aug. 8, 2019
Closure Date Aug. 9, 2019
Payment Date Aug. 16, 2019
