BY BAMIDELE FAMOOFO
Brief history
MTN Nigeria, one of Africa’s largest providers of communications services, connecting approximately 69 million people in communities across the country with each other and the world, launched operations in Nigeria on May 16, 2001, when its very first phone call was made at Maritime House Apapa. Ever since then, it has maintained its leadership position in coverage, capacity and innovation.
“Our vision is to lead the delivery of a bold, new digital world to our customers and our purpose is to make Nigerian lives a whole lot brighter by delivering relevant, accessible, high-quality telecommunications solutions that put them in control. We believe everyone deserves the benefits of a modern connected life,” Karl Toriola, Chief Executive Officer, MTNN Plc, said.
His words, “Guided by the philosophy of shared prosperity, we believe that the success and growth of our business is tied to the wellbeing and success of the communities in which we operate. A proudly Nigerian company, we are committed to the growth of the economy and the progress of our people. We understand that with real access and support, there is nothing Nigerians cannot achieve.”
MTN Nigeria is part of the MTN Group – a multinational telecommunications group, which operates in 21 countries in Africa and the Middle East.
Management
On the board of MTNN Plc are seated 15 members headed by Ernest Ndukwe and seven other prominent Nigerians. The management team is led by another Nigerian, Karl Toriola.
Capital raise
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 analysis by stock experts at United Capital Research; it is believed the Offer is a fair deal for investors.
“We strongly believe MTNN is a “must-have” in the portfolios of retail clients,” United Capital Research disclosed in a report.
The Offer includes an incentive of 1 free share for every 20 shares purchased and is capped at 250 free shares per investor.
Meanwhile, the bonus incentive is open to retail investors who buy and hold the shares for at least 12 months, post allotment.
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 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 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. 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 for its proposed MOMO Payment Service Bank, MTNN is poised to offer banking services like 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, it is anticipated that MTNN will emerge as a leader in the mobile money market.
Financial performance
MTN Nigeria Plc’s revenue has increased at a compound annual growth rate 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 increased to 127.0% from 111.0% in 2019, while earnings per share 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. This is expected to be sustained over our forecast period of 2021E – 2025E.
Valuation
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.
