August 2, 2021/Cordros Report
MTN Nigeria Communications Plc (MTNN) released its Q2-21 unaudited results at the close of business last week Friday (July 30). Q2-21 standalone PAT rose by 59.1% y/y to NGN68.09 billion while EPS stood at NGN3.35 (+59.1% y/y), bringing the H1-21 EPS to NGN6.97 (+49.5% y/y). The growth in EPS was driven mainly by the solid expansion in the top line, which trumped growth in network operating costs and operating expenses. The company declared an interim dividend of NGN4.55/s (H1-20: NGN3.50/s), translating to a dividend yield of 5.5% based on the last closing price of NGN165.00 on July 30.
Service revenue grew by 31.4% y/y in Q2-21 (H1-21: +24.0% y/y), due to the double-digit expansion in voice (up 20.2% y/y; 60.8% of revenue), data (up 53.6% y/y; 30.3% of revenue), and value-added services (up 64.4% y/y; 4.3% of revenue). We believe the stronger growth in voice revenue in Q2-21 (+20.2% y/y) compared to Q1-21 (+8.9% y/y) reflects gains from the directive of the Nigeria Communications Commission (NCC) to lift the SIM registration ban in mid-April. We recall that the NCC placed the ban in December 2020 to enable subscribers to link their National Identification Numbers (NIN) to their SIM cards. We also imagine that the low base in the prior year due to the pandemic further amplified the growth in voice revenue.
On data revenue, Management noted that the growth was driven by increased usage from its existing base, accelerated 4G rollout and enhanced network capacity following the acquisition and activation of an additional 800MHz spectrum in Q1-21. Notably, data traffic rose by 83.0% y/y; smartphone penetration grew by 5.8ppts to 49.3%, while 4G penetration rose to 65.1% from 60.1% in December 2020. In addition, the growth in value-added services was supported by the increased adoption of MTN Xtratime (an airtime lending service) and its core fintech services.
Despite the increases in network operating costs (up 23.1% y/y) and operating expenses (up 22.7% y/y), the strong topline growth pushed EBITDA higher by 40.3% y/y to NGN212.66bn in Q2-21. Similarly, EBITDA margin expanded by 331bps to 52.4% in Q2-21 (H1-21: +147bps to 52.7%). However, we highlight that the substantial increases in the cost line items as mentioned above was due 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 depreciation, (3) accelerated site rollout, and (4) COVID-19 related expenditure.
Net finance cost declined marginally by 1.6% y/y in Q2-21 due to the strong growth in finance income (+18.8% y/y) as finance cost remained stable (+0.8% y/y). The increase in finance income was supported mainly by higher Interest on bank deposits given the improved yields on risk-free assets.
Overall, Pre-tax Profit grew 79.9% y/y to NGN112.13 billion in Q2-21 (H1-21: +54.1% y/y to NGN215.12 billion). However, a higher effective tax of 39.3% in Q2-21 compared to 31.3% in Q2-20 led to the slower growth in Profit after tax (up 59.1% y/y in Q2-21).
The company will hold a conference call today at 3:00pm Lagos time to discuss the results.
Comment: We are impressed with the increase of 30.0% y/y in the interim dividend declared by MTNN. We like that the company optimised its operating leverage to drive the expansion in EBITDA Margin despite the impact of currency devaluation on BTS lease cost and elevated inflationary pressures in the economy. Following the publication of the supervisory framework on Payment Service Bank (PSB) by the CBN, we believe analysts’ questions during the conference call will be centred mainly on updates on the Nigerian PSB license. Our estimates are under review.
