MTN Nigeria hibernates after earnings disappoint

MTN Nigeria Plc’s market valuation has hibernated, trending below N5 trillion after the telecom company’s unimpressive earnings in the nine months of the financial year 2023, according to data obtained from the Nigerian Exchange.

Losses sustained from foreign currency liabilities spooked the company’s earnings performance amidst increased leverage. MTN Nigeria’s borrowings raised its net finance costs in addition to FX losses, delving a heavy blow on its profitability.

Since then, its share price has stopped climbing following investors’ mood swings that kept its share in pockets untraded. Now, MTN Nigeria has become a fallen angel, replacing Airtel Africa which has recently experienced strong market revaluation.

In the nine months of financial year 2023 results, MTN Nigeria’s profit before tax payment declined by 42% to N232.47 billion from N400.67 billion in the comparable period in 2022.

The telecom giant posted a 45.2% year-on-year decline in net profit which settled at N147.36 billion at the end of 9M-2023 from N181.62 billion 12 months earlier. The downbeat performance translated to a steep decline in EPS to N7.06 from N12.89 over 12 months.

Grew by 21.8% year on year, MTN Nigeria’s revenue printed at N1.77 trillion from N1.46 trillion in 9M 2022. Data Revenue remained strong in the period, according to analysts, increasing by 36.4% to N749.53 billion from N549.66 billion in the comparable period.

Interestingly, data revenue surpassed voice revenue as the largest contributor to total revenue, highlighting the impact of MTNN’s strategic intent on maximising value from the segment.

“We expect this resilience to be sustained for the remainder of the year and thus project a 29.7% year-on-year growth in data revenue”, Cordros Capital said in an equity review. On voice revenue, analysts project a 13.6% year-on-year growth with most of the support still coming from an expected increase in subscriber base and sustained usage of MTNN’s voice propositions.

“We maintain our estimate of a 5.0% year-on-year increase in MTNN’s subscriber base to 79.30 million by year-end 2023 from 75.60 million in 2022. Cordros Capital analysts expect the company’s revenue to grow by 20.3% year on year for 2023 and model an average growth of 15.7% in 2024-2027E.

“We project a 325bps decrease in MTNN’s 2023 EBITDA margin, reflecting heightened cost pressures from the higher FX pricing on tower costs, the impact of the new VAT on tower leases and the highly inflationary environment”, the investment firm projected.

Consequently, analysts forecast that MTNN EPS will decline to N11.61 from N17.63 in 2022, highlighting the one-off impact of the steep FX depreciation in H1-2023.

“Key profitability ratios dwindle: Following our expectations of higher cost pressures on margins, we expect a dip – albeit temporarily – in key profitability ratios”, Cordros Capital said in its update.

The investment firm set N295.05 as the target price for the Telecom Company and maintained a buy rating on the stock. The company registered higher capital investment to boost its market fundamentals. MTNN CAPEX expenditure was up by 6.9% year on year to N405 billion amidst macroeconomic downturns.

A major issue that faced the company was a steep increase in net finance costs. According to its unaudited financials, net finance cost surged by 174.41% to N375.96 billion in the third quarter of 2023.

This was due to higher leverage and a forex loss of N232.8 billion on their company’s net foreign currency liabilities following the significant devaluation of the naira in June.