March 1, 2021/Cordros Report

MTN Nigeria Communications Plc (MTNN) released its Q4-20 audited results yesterday (February 28) with revised 2019 numbers. The group reported EPS of NGN3.00 (+0.9% y/y), bringing the 2020FY EPS to NGN10.08 (+0.9%). The achieved EPS is in line with our estimate (-0.4% variance) and consensus estimate (-1.4% variance) for 2020FY and was underpinned by accelerating topline growth. A final dividend of NGN5.90/s was proposed, above our estimate and management’s guidance, which equates to a yield of 3.4% on the last closing price (NGN174.00 on February 26).

Service revenue accelerated from +16.6% y/y in Q3-20 to +18.3% y/y in Q4-20, driven by growth in data (+58.0% y/y) and voice (+8.3%) revenue.
 
Growth in data, which contributed 24.5% (Q3-20: 25.9%) to revenue, was delivered through a combination of increased active data subscribers (Q4 net additions: +1.9 million), increased usage (MB per user) and traffic (+126.5% y/y), all supported by increased network capacity and 4G penetration. Notably, smartphone penetration grew to 45.9%, from 45.2% in Q3, and 41.9% in Q4-19, while 4G population coverage increased to 60.9%, up from 52.9% in Q3 and 43.8% in Q4-19.
 
The growth in MTNN’s subscriber base (Q4 net additions: +1.5 million, in line with our estimate) provided support for voice revenue (+8.3% y/y) which accounted for 56.1% of total revenue in Q4-20. According to management, the primary drivers for this were the expanded customer acquisition touchpoints, rural telephony initiatives, and revamped acquisition offers implemented in the quarter. As expected, the new SIM registration suspension in mid-December did not have a significant impact on voice revenue due to an increased level of activity from the existing customer base.
 
During the quarter, total expenses grew by +26.3% y/y, owing to (1) increased BTS lease costs (due to the restructuring of the service agreement with IHS wherein the reference rate for naira conversion was moved from the official rate to the NAFEX rate), (2) exchange rate deprecation, (3) the effect of the 2.5% increase in VAT, (4) the change in the treatment of non-recoverable VAT on lease payments, and (5) COVID-19 related costs. Consequently, EBITDA (+11.4% y/y) grew below revenue growth, with EBITDA margin printing 50.7% (vs 50.6% in Q3-20 and 53.8% in Q4-20).
 
Net finance costs (+7.6% y/y) rose in Q4-20, following an 11.7% increase in finance costs – total debt grew +17.1% y/y to NGN1.06 trillion following the NGN100.00 billion commercial paper issuance in June 2020.
 
Overall, Q4 PBT and PAT grew +11.4% y/y and +12.8% y/y respectively. Effective tax for the quarter was 30.1%, compared to 31.0% in Q4-19 and 31.5% in Q3-20.
 
Management call on Wednesday, March 3, 2021, at 3.00 pm Nigerian time. Nigeria dial-in +23419030040; UK dial-in +443333001417. Click here to register.
 
Comment: MTNNs operational performance in Q4-20 was impressive and in line with expectations. Issues around the suspension of SIM registrations remain the significant headwind for Q1-21. We reiterate that the start of the company’s PSB operations remains the key catalyst, in our view, as mobile money in Nigeria presents a compelling growth/return opportunity for MTNN. According to management, the company grew its agent network by a whopping 269.2% y/y to 395,000 agents in 2020FY.  We look for the company to provide an update on the Nigerian PSB license on the conference call. We expect a positive investor reaction, especially with the higher-than-expected dividend payout (93.2% vs management guidance of 80.0%). MTNN’s share price is up 2.4% YTD, and on our estimates, the stock is trading on 2021E P/E and EV/EBITDA multiples of 11.8x and 5.2x, a discount to emerging market peers 21.5x and 5.4x. Our estimates are under review.