August 1, 2022/CSL Research

MTN Nigeria’s H1 2022 unaudited results released on Friday, 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 H1 2022 financial scorecard, the company sustained the momentum it has maintained over the last five quarters, reporting a 20.1% y/y growth in Revenue to N950.1bn from N791.3bn in H1 2021. On a q/q basis, total Revenue improved by 1.7% to N479.1bn in Q2 2022 from N470.98bn in Q1 2022. The growth in Service Revenue (up 19.9% y/y to N947.9bn) supported the increase in total Revenue.  

Expectedly, Data Revenue remains the gold mine evidenced by its significant growth, up 51.6% y/y increase to N348.5bn in H1 2022 from N229.9bn in H1 2021. The growth in data subscribers base and data usage comes from the aggressive 4G network expansion, enhanced quality, and capacity of its network, which is boosting connectivity to support rising data traffic. Specifically, Data traffic rose by 79.3% y/y and usage (MB per user) by 61.8%. Also, we believe the recent regulatory policy barring outgoing calls for unlinked SIMs, saw increased adoption of communication via Voice over the Internet Protocol (VoIP), boosting accretion in data usage. The firm reported smartphone penetration rate of 50.6% as of H1 2022.  

Also, voice Revenue (up 2.9% y/y to N501.8bn in H1 2022) continues to grow at a single digit rate, and at this time, growth was also impacted by regulatory restriction. The management attributed the growth in Voice Revenue to increased gross connections as more customers were reactivated amidst higher usage of active SIMs, which masked the impact of the SIM registration and activation restrictions. Also, the firm recorded a 7.6% y/y increase in its subscribers’ base to 74.1m subscribers as of June 2022. In Q1 2022, number of subscribers increased by 1.7m to increase the mobile subscribers to 70.2m in March 2022. Now in Q2, number of subscribers increased by 3.9m from March to reach 74.1m subscribers in June 2022. Likewise, we note a significant improvement in Fintech Revenue (from its Xtratime airtime lending product, and mobile financial services), up 27.8% y/y to N40.4bn and Digital Revenue (from its Ayoba instant messaging platform and Rich Media), up 60.9% y/y to N10.2bn in H1 2022. Notably, the company commenced its MoMo PSB operations in May 2022.  

Growth in Direct Network Operating costs lagged Revenue growth, climbing by 12.2% y/y to N215.8bn in H1 2022 from N192.4bn in H1 2021. The increase in BTS leases cost (up 14.6% y/y to N157.6bn) 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 network maintenance (up 5.9% y/y to N33.1bn) as well as fees on the annual numbering plan (up 48.5% y/y to N4.9bn) also contributed to the growth in Direct Network Operating Costs. Nevertheless, growth in Profit after direct costs remained strong, rising by 22.6% y/y to N734.3bn in H1 2022 from N598.8bn in H1 2021.  

Operating Expenses excluding depreciation & amortization rose by 23.9% y/y to N224.96bn in H1 2022 from N181.6bn in H1 2021. Save for Transmission cost, all other components of Opex increased y/y. The growth in Opex reflects the impact of naira devaluation on the company’s USD costs associated with lease rentals, and additional site rollout. Nevertheless, EBITDA edged higher, up 22.1% y/y to N509.3bn in H1 2022 from N417.2bn in H1 2021. In addition, EBITDA margin expanded, up by 88bps y/y to 53.6% in H1 2022. Defying all odds, Operating Profit grew by 28.7% y/y to N352.3bn in H1 2022 from N273.7bn in H1 2021 despite a 9.4% y/y increase in Depreciation & Amortisation to N157.0bn in H1 2022.  

Net Finance Cost grew significantly, up 42.8% y/y to N83.7bn in H1 2022 from N58.6bn in H1 2021. The elevated Net Finance Cost mirrors the 41.2% y/y increase in Finance Cost masking the 24.5% y/y rise in Finance Income. The increase in Finance Income was majorly driven by higher interest earned on bank deposits (up 277.7% to N2.2bn). On the other end, Finance Costs rose mainly on the back of increased interest expense on borrowings (up 64.2%) due to elevated borrowings as well as increased expense on leases (up 8.3% y/y) and FX loss (up 420.3% y/y).

Pre-tax Profit increased, up 24.9% y/y to N268.6bn in H1 2022 from N215.1bn in H1 2021. Effective Tax Rate moved down to 32.4% from 34.1%. Net Profit rose by 28.1% y/y to N181.6bn in H1 2022 from N141.8bn in H1 2021. The company reported a loss on its investments on federal government treasury bills of N111m in H1 2022, pushing the Total Comprehensive Income for the period to N181.5bn (up 28.0% y/y). Consequently, EPS rose to N8.92/s in H1 2022, representing a 28.1% increase compared with H1 2021 (N6.97/s).

The management proposed an interim dividend of N5.60/s, up by 23.1% and translates to a dividend yield of 2.8% based on the last closing price of N200.10/s.

We have a target price of N270.40/s with a BUY recommendation on the stock. Current price; N200.10/s.

The company will hold a conference call, today, 01 August 2022 at 3 pm Lagos time to discuss the results. 

Source: Company data, CSL Research