MTN NIGERIA COMMUNICATIONS PLC FY’21 - Living up to expectation

What shaped the past week?

Global: While some global markets rebounded this week, risks to growth persist and remain at the forefront of global investors’ concerns. Starting in Asia, markets rebounded significantly following the steep selloffs observed in the region last week; the Hong Kong based Hang Seng index soared 4.34% w/w, while the Shanghai Composite closed flat on the week. Still in the region, the Japanese Nikkei-225 rose 2.70% w/w, as investors reacted to the latest earnings report by big technology firms, such as Amazon Inc. and Snap Inc, who posted annual rises in Q4’21 revenues. Moving to Europe, sentiment remained largely sell-side driven, as major markets in the region recorded losses this week. In Germany, the DAX eased 1.47% w/w, dragged by losses observed in plane manufacturer AIRBUS (-2.69%), carmaker Volkswagen (-5.57% w/w) and chipmaker Infineon Technologies (-4.29% w/w). Investor focus was also centered on the latest inflation numbers for the Eurozone; Consumer prices in the Eurozone rose by 5.1% in January, exceeding market expectations, the European Union’s statistical office Eurostat revealed on Wednesday. Other markets in the region, notably the London FTSE 100 recording marginal gains rising 0.20% w/w, while the French CAC eased 0.46% w/w. Finally, in the U.S., tepid interest across the region saw all markets post marginal gains w/w. The S&P 500, NASDAQ and Dow Jones all rose 0.91%, 0.32%, and 0.67% respectively, as investors take risk-averse stance to the market given the tapering actions being carried out the U.S. Fed.

Domestic Economy: The CBN released 23.2 billion naira to the first beneficiaries of the 100 for 100 policy on Tuesday this week. This came 3 months after the scheme was launched with the goals of, improving non-oil exports, increasing local production, reducing over reliance on imports, and increasing foreign exchange earnings. However, we remain wary of operational bottlenecks, poor infrastructure, and harsh economic conditions that could undermine the policy objectives.

Equities: Despite taking a negative turn midweek, the ASI posted gains to end the week, as earnings results continue to shape market sentiment. The local bourse gained 2.33%, as we witnessed some significant buyactivity across key sectors that weighed on the index performance. Starting in the Oil & Gas space, the sector rose 7.69% w/w, as demand for stocks like CONOIL (+2073 bps w/w), OANDO (+1145bps w/w) and SEPLAT (1013 bps w/w) propelled the sector higher. Also, the Industrial goods space closed in the green, as gains in DANGCEM (+545 bps w/w), and WAPCO (+352 bps w/w) weighed in on the sector. Finally, the banking space posted marginal gains to close 0.84% higher w/w as demand for names like GTCO (+721 bps w/w) and FIDELITY (478bps w/w) help offset losses in ETI (-763bps w/w) and FBNH (-711bps w/w). Meanwhile, the Consumer Goods space took a downturn to close 81bps lower, as losses in INTBREW (-940 bps w/w) and CHAMPION (-638 bps w/w) dragged the sector lower.

Fixed Income: It was a tepid week of trading across the fixed income market, with the bulls coming out on top to close out the week. Persistent interest at the short end of the market remains a driver of activity in the bonds space. Average yield on benchmark bonds eased 16bps w/w, with the yield on the FGNAPR-2029 bond easing 14bps w/w to settle at 11.80%, while, little to no activity across the NTB and OMO segments saw yields across both markets close flat on the week.

Currency: The Naira remained unchanged at the I&E FX Window to close at N416.33 What will shape markets in the coming week?

Equity market: We saw a slight recovery in the banking space today, however, market traded bearish as most of the sectors closed in the red. We expect the new week to start off with mixed sentiment, amid cherry-picking activities.

Fixed Income: In the coming week, we expect trading in the bonds market to remain tepid, while the NTB and OMO spaces are also likely to trade quietly ahead of the upcoming PMA.

Currency: We expect the naira to remain largely stable across the various windows of the currency space as the CBN maintains interventions in the FX market.

MTN NIGERIA COMMUNICATIONS PLC FY’21 - Living up to expectation

MTNN audited FY’21 earnings result was impressive and fell in line with expectations. The company’s revenue came in at N1.6 trillion (Vetiva estimate: N1.6 trillion), which indicated a 23% increase y/y. The data business remained the primary driver for topline growth, as data turnover came in 55% higher y/y to print at N516 billion (Vetiva estimate: N518 billion). With expanding 4G area coverage, new customers have opted in, while existing subscribers may also be converting primary data usage to the network. As such, data demand on the network has been on the rise. Also, the company continues to reap benefits from its customer value management strategy, as the voice services segment also recorded marginal growth of 8% y/y, despite a 10% decline in mobile subscriber base. It is important to note that the y/y decline in mobile subscriber base was as a result of the impact of the NIN-SIM linkage policy; however, the mass wide campaign on promoting the NCC’s policy seems to be paying off as the company hinted that in Q4, mobile subscriber base returned to net positive additions.

MTNN’s Q4 performance was also impressive, with revenue growing 21% y/y to print at N448 billion. Again, the data segment supported Q4 numbers, as it advanced 65% y/y to print at N149 billion (FY’20: N90 billion), while voice services grew by a marginal 1% y/y, coming in at N209 billion (FY’20: N207 billion). Meanwhile, on a q/q basis the company’s voice services segment posted the highest growth of all 3 quarters to print 6% higher, which indicates steady recovery in mobile subscriber base. On the other hand, the data segment bumped up 9% q/q.

Q4 operating results drive full year margins higher

Surprisingly, EBITDA margin improved to 53% y/y (FY’20: 51%), and also recorded an uptick in Q4’21 from the 52% we saw in the 3 previous quarters to 54% in the last quarter, as a faster growth in topline as well as a slowdown in OPEX helped improve margins. For context, in Q4’21, OPEX contracted 6% q/q. Consequently, it is safe to say Q4’21 was the best quarter for the company. Finally, EBITDA advanced 28% y/y to N877 billion, while profit before tax came in at N436 billion (up 46% y/y). All in, net profit for the year increased to 298 billion, rising 45% y/y.

In the new year, we believe the company’s 4G coverage will continue to be expansive and as such, we project a 15% y/y growth. The company’s voice service is also expected to record growth, albeit slower as this segment remains subject to stiff competition, given the growing preference for internet-driven, cheaper substitutes. Overall, we see 2022 revenue coming in at N1.8 trillion (up 15% y/y). Also, while we have strong projections for revenue, we expect PAT to print 6% lower y/y, as the likely payment of $275 million in Q1 for the recently acquired 5G license may drag bottom line. That brings our PAT expectation to N281 billion. Overall, we estimate a target price of

230.57 per share and rate MTN a BUY. remain fixed, as the drivers of inflation remain largely structural.