August 2, 2021/CSL Research

Following a resilient performance in Q1 2021 amidst regulatory headwinds, MTNN sustained the upbeat in its H1 2021 results, reporting a 24.0% y/y increase in Revenue to N791.3bn from N638.1bn in H1 2020. On a q/q basis, Total Revenue improved by 5.4% to N405.9bn in Q2 2021 from N385.3bn in Q1 2021. The growth in Total Revenue was buoyed by better outturn in Service Revenue (up 24.1% y/y to N790.3bn). The main drivers of Service Revenue were Data (up 48.4% y/y to N228.5bn) and Voice (up 13.1% to N487.7bn). The management attributed the growth in Voice Revenue to an 11.8% increase in traffic and higher usage of active SIMs as well as migration which partly mitigated the impact of the regulatory policy on suspension and activation of new SIMs. The regulatory ban on new SIM sales and activation was lifted on 19 April 2021, a development that should shore up the existing customer base going forward. For Data Revenue, the firm noted a surge in traffic after its rollout of additional 4G network sites which boosted connectivity. Due to regulatory restrictions and customer attrition, key metrics like total mobile subscribers declined (down 7.6m subscribers to 68.9m) and active data users (down 52,000 to 32.5m). On the other hand, we also note a significant improvement in Fintech Revenue, up 48.2% y/y to N31.6bn and Digital Revenue, up 61.8% y/y to N7.9bn in H1 2021.

Direct Network Operating costs grew faster than Revenue, climbing higher by 29.5% y/y to N192.4bn in H1 2021 from N148.6bn in H1 2020. The growth in Direct Network Cost was driven by higher BTS leases cost (up 28.3% y/y to N137.5bn) due to pass through effect of the full impact of lease rentals as well as upward pressure on Naira costs due to currency adjustments. Beyond that, the increased network maintenance costs (up 28.0% y/y to N31.2bn) as a fallout of enhanced network capacity and sizable regulatory fees (up 24.6% y/y to N20.4) also contributed to the spike in Direct Network Operating Costs. As a result, growth in Profit after direct costs moderated, climbing higher by 22.3% y/y to N598.8bn in H1 2021 from N489.5bn in H1 2020.

Operating Expenses rose 11.8% y/y to N181.6bn in H1 2021 from N162.5bn in H1 2020. Growth in Value Added Services (+33.8% y/y), Discounts & Commissions (+23.9% y/y), Advertisements, Sponsorships & Sales Promotions (+26.7% y/y), Interconnect & Roaming Costs (+15.9% y/y), Transmission costs (+35.5% y/y) and Other Operating Expenses (+26.7% y/y), were the major drivers of the double-digit surge in Opex. The growth in Opex reflects the impact of Naira devaluation on the company’s USD costs, additional site rollout and Covid-19 related expenditure. Nevertheless, EBITDA grew higher by 27.6% y/y to N417.2bn in H1 2021 from N327.1bn in H1 2020. In addition, EBITDA margin expanded, higher by 147bps y/y to 52.7% in H1 2021. Beating all odds, Operating Profit grew by 33.8% y/y to N273.7bn in H1 2021 from N204.5bn in H1 2020 despite a 17.1% y/y jump in Depreciation & Amortisation to N143.5bn in H1 2021.

Net Finance Cost declined, down 9.8% y/y to N58.6bn in H1 2021 from N65.0bn in H1 2020. The fall in Net Finance cost reflects the 11.4% y/y decrease in Finance Cost despite a 25.4% y/y drop in Finance Income. The decline in Finance Income was driven by lower interest earned on financial instruments and no FX gain earned in H1 2021. Also, Finance Costs fell mainly due to lower Interest Expense on borrowings (down 43.6% y/y). Consequently, Pre-Tax profits increased, up 54.1% y/y to N215.1bn in H1 2021 from N139.6bn in H1 2020. Effective Tax Rate rose slightly by 2.0ppts y/y to 34.1%. Net Profit was up 49.5% y/y to N141.8bn in H1 2021 from N94.9bn in H1 2020.  That said, the company recorded no transaction from other comprehensive income compared with a loss of N232m incurred in H1 2020. As a result, Total Comprehensive Income for the period increased by 49.9% y/y to N141.8bn in H1 2021 from N94.6bn in H1 2020. EPS rose to N6.97/s in H1 2021 from N4.66/s in H1 2020.

On 29 July 2021, the Board approved the payment of an interim dividend of N4.55/s (an increase of 30% y/y relative to N3.50/s), implying an annualized dividend yield of 5.5% based on the last closing price of N165.00/s.

We have a target price of N196.68/s with a BUY recommendation on the stock. Current price; N165.00/s.

The company will hold a conference call today, Monday, 02 August 2021 at 3 pm Lagos time to discuss the results.