Culled—-Proshare

November 2, 2020

by FBNQuest Research

Negligible changes to our 2020-21E EPS forecasts

We are encouraged to see that MTN Nigeria’s (MTNN) Q3 2020 results are pointing in the right direction despite cost pressures arising from fx-linked costs (mainly lease rentals) and the 2.5% increase in VAT. After slowing down to single-digits in Q2, revenue growth recovered to the high-teens range in Q3, driven by an acceleration in mobile data usage and a recovery in voice traffic. Data traffic was underpinned by net (data) subscriber additions of 1.7 million and a 1,750bp y/y expansion in the 4G population coverage ratio to 52.9%.

In addition to the normalisation of voice traffic following easing of the COVID-19 induced restrictions, net subscriber additions were up 50% q/q to 3.9 million. As such, MTNN’s revenue beat our forecast by 6%. Regardless of the upward pressures on costs (the firm’s N/US$ reference rate was increased to 385 from 307 previously), PBT and PAT were both in line with our forecasts.

Consequently, we have made negligible changes to our 2020-21 EPS forecasts. Our price target of N206.1 is also unchanged. Going forward, we continue to see strong growth in data traffic due to innovation and digital transformation fueled by the pandemic. We also expect earnings to continue to benefit from the recovery in voice traffic. On a relative basis, MTNN’s shares are trading on a 2020E P/E multiple of 14.3x for 9.2% EPS growth in 2021E.

Although the shares have gained 22.1% over the last 3 months vs. 23.6% NSE ASI, our price target still implies a potential upside of 43.2% from current levels. Consequently, we retain our Outperform rating.

Q3 sales up 17% y/y

Q3 revenue of N338bn were up 17% y/y, a marked improvement over the 8% y/y growth it delivered in Q2. The solid sales growth was largely driven by a 56% y/y growth in data revenue, on the back of sustained data demand for remote working, entertainment and streaming services. That said, the pick-up in voice revenue growth to 7% y/y (vs. c-2% Q2) was also supportive.

Despite the solid sales growth, PBT growth narrowed to 2% y/y because net interest expense and total opex both increased by 23% y/y. Below the tax line, PAT of N49.3bn was flat y/y. Sequentially, sales advanced by 9% q/q. PBT and PAT also expanded by between 13% and 14% q/q.