November 10, 2021/Proshare

by FBNQuest Research 

3% average increase to our EPS forecasts, and price target

Once again, MTNN delivered a five-star performance for its Q3 ’21 results. Excluding voice revenue which grew by mid-single digits y/y, all the major revenue segments including data, fintech and digital produced high double-digit growth within the 40-70% range. The growth in both voice and data revenue, was driven by increases in voice and data usage per subscriber. For voice revenue, a 10% y/y growth in average minutes per subscriber completely offset a roughly equivalent (-10% y/y) decline in active mobile subscribers.

The drivers of data revenue growth were the same as in Q2, namely; a 58% y/y increase in average data usage (MB) per subscriber, a 350bp y/y rise in smartphone penetration to 48.7%, and expansion of the 4G network coverage to 69.2% from 48.6% in Q3 ’20 (65.1% in Q2 ’21). Following the higher voice and data traffic y/y, we estimate MTNN’s blended and data ARPU were up almost 22% y/y (4% q/q) and 33% y/y (10% q/q) to USD4.89 and USD3.35 respectively. Although the company’s PBT was in line with our forecast, PAT beat by c.8% due to a positive surprise on the tax line. Consequently, we have increased our ’21f-22f EPS forecasts by an average of 3%, and our price target by a similar margin.  

Last week (04 Nov ’21), MTNN informed the Nigerian Stock Exchange (NGX) that it intends to proceed with a bookbuild public offering of 575 million units (c.2.8%) of its shares to institutional and retail investors. According to the company’s Q2 ’21 conference call, this is the first phase in a wider strategy to sell down up to 14% of MTN Group’s equity in MTN Nigeria over the medium term.  Although the shares have rallied c.14% since the announcement (vs 4.3% NGX ASI), we believe that they still have sizable upside potential. On a medium-term basis, we think the fundamentals are solid. Apart from the strong growth in data usage, we believe that the CBN’s recent approval-in-principle for the company’s payment service bank licence could be a key positive driver for its mobile/ fintech business segment moving forward. 

On a relative basis, MTNN shares are trading on a FY ’21. P/E multiple of  13.5x for 13.8% EPS growth in FY ’22. Our new price target of NGN238.9 implies a potential upside of c.20% from current levels. As such, we retain our Outperform rating. 

Q3 PAT up 59% y/y driven by a 23% y/y increase in sales

MTNN’s Q3 sales grew 23% y/y to NGN415bn primarily driven by growth of 57% y/y and 6% y/y in data and voice revenue respectively. EBITDA increased 27% y/y, on the back of the robust sales growth and a 178bp increase in EBITDA margin to 52.4%. PBT and PAT increased by 48% y/y and 59% y/y to NGN106bn and NGN78bn respectively. Sequentially, sales were up by 2% q/q. PBT, on the other hand, fell 5% q/q mainly due to a 35% q/q rise in net interest expense In contrast, PAT grew 15% q/q, thanks to a lower effective tax rate of 26% compared with 39.3% in Q2 ’21.