March 17, 2021/Proshare

by FBNQuest Research 

Slight reduction to our price target due to 100bp increase to our risk-free rate

MTN Nigeria’s (MTNN) Q4 ’20 results showed that the earnings recovery which started in Q3 ’20 carried on into the final quarter of the year. We note the significant improvement in segment trends, particularly voice revenue which grew 11% y/y during the quarter (7% y/y Q3 ’20), after declining y/y in Q2 because of the knock-on effects of the pandemic.

Although data revenue growth slowed from 56% y/y in Q3, it was still healthy at 38% y/y, on the back of a 29% y/y rise in active data subscribers and increased data usage per user. The strong (+16.8% y/y) growth in service revenue offset cost pressures (mainly due to fx adjustments) and resulted in PBT growth of 11% y/y and a 5% beat to our pre-tax earnings forecast.

Following the positive surprise in the results, we have increased our ’21-23f earnings forecasts by an average of 6%. Supporting our earnings upgrades are average increases of 2% and 7% to our voice and data revenue forecasts over the forecast period. Despite the earnings upgrade, our price target of NGN215.7 is slightly lower (-1.3%) because we have increased the risk-free rate driving our DCF valuation to 11% from 10% previously.

According to management, about 49% of its 76.5 million active subscribers have submitted their NIN details. Excluding back-end verification by the regulatory agencies, the firm has the capacity to carry out c.12 million subscriber registrations per month. Moving into 2021, management intends to expand its 4G population coverage to c.70% from 60% as of end-Dec ’20.

In addition to the recovery in voice revenue, we continue to see robust growth in the data segment, driven by a surge in mobile data traffic and increasing adoption of mobile applications, e-commerce, entertainment and remote working.

Consequently, we forecast ’21f sales and PBT growth of 10% and 11% y/y respectively. Having shed -11.7% since 29 January vs. -8.7% for the ASI, the shares now imply a potential upside of 35% from current levels. Consequently, we retain our Outperform recommendation on the shares.

Q4 PBT up 11% y/y, driven by sales growth of 18% y/y

MTNN’s Q4 ’20 PAT advanced by 12% y/y, thanks to an 18% y/y increase in sales. The key drivers of sales growth were robust growth in data revenue on the back of net additions of c.7.4 million in active data subscribers to 32.6 million relative to the prior year, and higher smart phone penetration of c.45.9% vs. 41.9% Q4 ’19. 

Voice revenue, which accounted for c.66% of service revenue, also grew by 11% y/y, due to a 10% y/y growth in active subscribers to 76.5 million. Although they account for only a fraction of revenue, topline growth for Fintech and digital was healthy at 25% y/y and 92% y/y respectively.