MTN’s Nigeria listing may lift value

A local listing could push up the valuation of MTN’s business in Nigeria, which trades at a discount to the group and its emerging-market peers, says Imtiaz Suliman, portfolio manager at Sentio Capital.

MTN Group CEO Rob Shuter said last week the initial public offering (IPO) of the Nigerian unit should be completed within six months, subject to market conditions.

The IPO is part of an agreement between MTN and Nigerian regulators, after the company missed a deadline to disconnect unregistered subscribers in the West African country. MTN was fined $1bn.

“I don’t think there’s any downside [to the IPO] — it just crystallises that entity in Nigeria,” Suliman said.

Domestic investors could “bid that asset up given that it’s a decent asset with quality underlying cash flows”.

MTN Nigeria was likely to trade at an enterprise value to earnings before interest, taxes, depreciation and amortisation ratio of about five, which was behind the group and below the norm for emerging market telecommunications firms of 6.5.

“That discount is there largely due to the regulatory unknowns. The fine was quite hefty, and you don’t know what could be next. MTN is seen as a dominant operator, so they get penalised on that side from a regulatory perspective,” Suliman said.

MTN may decide to undertake a secondary listing of the Nigerian business, possibly on the JSE, to promote “better price discovery given the liquidity on our markets”, he said.

The group would be likely to use the proceeds of the Nigerian IPO to “bolster the balance sheet” to support its dividend policy. The company has said previously that it would pay a dividend of R7 a share in the financial year 2017, in line with the previous year.

While debt levels were not “overly onerous”, MTN was paying out about 100% of its underlying cash flows to investors.

Africa Analysis director Dobek Pater said MTN might also use the IPO proceeds for capital expenditure in Nigeria, as the group spent “around $700m a year” on local infrastructure.

While it was difficult to predict whether market conditions would remain supportive of an IPO, “current indications are that it should be fine”, Pater said.