April 29, 2022/CSL Research

MTN Nigeria’s Q1 2022 unaudited results released this morning reflected the resilience of the company’s revenue generation capacity despite the industry-wide NIN-SIM exercise that has slowed down activities in the sector. Based on its Q1 2022 financial scorecard, the company sustained the momentum it has maintained over the last four quarters, reporting a 22.2% y/y growth in Revenue to N470.98bn from N385,32bn in Q1 2021. On a q/q basis, Total Revenue improved by 5.1% to N470.98bn from N448.0bn in Q4 2021. The growth in Service Revenue (up 22.0% y/y to N469.82bn) supported the increase in Total Revenue.

Expectedly, Data Revenue remains the gold mine evidenced by its accelerated growth trajectory of 54.0% y/y increase to N162.7bn in Q1 2022 from N105.7bn in Q1 2021. The growth in Data subscribers base and data usage comes from the aggressive 4G network expansion, enhanced quality and capacity of its network, boosting connectivity and support rising data traffic. Specifically, Data traffic rose by 84.8% y/y and usage (MB per user) by 69.8%. Even with the recent regulatory policy on barring outgoing calls for unlinked SIMs, we expect to see increase adoption of communication via Voice over the Internet Protocol (VoIP), still pointing to a good narrative for growth in data usage.  The firm reported a 4G penetration rate of 71.7% in March 2022 from 70.3% in December 2021.

Also, Voice Revenue continues to grow at a single digit rate, rising by 5.8% y/y to N258.8bn in Q1 2022. Notably, the Voice Revenue does not reflect the impact of the recent policy barring outgoing calls, as the mandate was provided shortly after Q1 2022 (04 April 2022). The management attributed the growth in Voice Revenue to increased gross connections and higher usage of active SIMs which masked impact of the SIM registration and activation restrictions. Although, the firm recorded a 1.9% y/y decline in its subscribers’ base from 71.5m subscribers in March 2021, it however sustained the growth trajectory from Q4 2021, by adding 1.7m subscribers to increase the mobile subscribers to 70.2m in March 2022 from 68.5m in December 2021. Likewise, we note a significant improvement in Fintech Revenue, up 46.5% y/y to N20.9bn and Digital Revenue, up 35.3% y/y to N5.1bn in Q1 2021. Interestingly, earlier than anticipated, the company received the final approval of its PSB license. We believe the commencement of its PSB operations will be an area of interest at its analyst call later today.   

Growth in Direct Network Operating costs lagged Revenue growth, climbing by 16.2% y/y to N107.3bn in Q1 2022 from N92.3bn in Q1 2021. The increase in BTS leases cost (up 19.2% y/y to N78.5bn) was due to the pass-through effect of the full impact of lease rentals and upward pressure on dollar-denominated costs due to FX depreciation largely drove Direct Network Cost. Beyond that, increased regulatory fees (up 17.9% y/y to N10.5) as well as fees on the annual numbering plan (up 55.3% y/y to N2.6bn) also contributed to the growth in Direct Network Operating Costs. Nevertheless, growth in Profit after direct costs remained strong, rising by 24.1% y/y to N363.71bn in Q1 2022 from N292.97bn in Q1 2021.

Operating Expenses excluding depreciation & amortization rose by 20.5% y/y to N106.6bn in Q1 2022 from N88.4bn in Q1 2021. All components of Opex increased y/y. Notably, we beam our spotlight on the 1,723% y/y increase to N4.9bn in costs of starter packs, handsets and accessories. The additional inventory write-down of N1.09bn was recognised in the costs of starter packs, handsets and accessories. The growth in Opex reflects the impact of naira devaluation on the company’s USD costs associated with lease rental costs, and additional site rollout. Despite that, EBITDA edged higher by 25.7% y/y to N257.1bn in Q1 2022 from N204.6bn in Q1 2021. In addition, EBITDA margin expanded, up by 353bps y/y to 54.6% in Q1 2022. Defying all odds, Operating Profit grew by 34.7% y/y to N179.3bn in Q1 2022 from N133.1bn in Q1 2021 despite an 8.9% y/y increase in Depreciation & Amortisation to N77.8bn in Q1 2022.  

Net Finance Cost increased, up 18.7% y/y to N35.7bn in Q1 2022 from N30.1bn in Q1 2021. The elevated Net Finance Cost mirrors the 28.6% y/y increase in Finance Cost despite a 273.8% y/y rise in Finance Income. The increase in Finance Income was driven by higher interest earned on bank deposits (up 1187.4% to N3.9bn). On the other end, Finance Costs rose mainly on the back of increased interest expense on borrowings (up 119.2%) due to elevated borrowings as well as increased expense on leases (up 7.8% y/y).

Pre-tax Profit increased, up 39.4% y/y to N143.59bn in Q1 2022 from N102.99bn in Q1 2021. Effective Tax Rate increased by 4.2ppts to 32.6%. Net Profit rose by 31.3% y/y to N96.8bn in Q1 2022 from N73.7bn in Q1 2021. That said, the company reported an asset value on federal government treasury bills investments of N52m in Q1 2022, pushing the Total Comprehensive Income for the period to N96.9bn (up 31.4% y/y). Consequently, EPS rose to N4.76/s in Q1 2022, representing a 31.3% increase compared with Q1 2021 (N3.62/s).

We have a target price of N221.22/s with a BUY recommendation on the stock. Current price; N215.00/s. Our estimates are under review.

The company will hold a conference call today, Friday, 29 April 2022 at 3 pm Lagos time to discuss the results. 

Source: Company data, CSL Research