FSDH Initial Reaction: MTN Nigeria 1Q23 results 
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April 28, 2023/FSDH Research

Key Performance Highlights:

• MTN Nigeria maintained its robust momentum from last year, posting double-digit growth in 1Q23. The company recorded a 20.6% YoY revenue growth to N568.1 billion in 1Q23. The service revenue soared 20.5% YoY to N565.9 billion in 1Q23, primarily driven by a 40.0% YoY spurt in data revenue to N227.8 billion (40.3% of service revenue), 7.3% YoY rise in voice revenue to N277.4 billion (49.1% of service revenue), an 8.6% YoY growth in fintech revenue to N22.7 billion (4.0% of service revenue), and 41.2% YoY jump in digital revenue to N7.2 billion (1.3% of service revenue). Voice revenue rose 7.3% YoY on increased usage supported by revamped voice proposition, customer value management (CVM) initiatives, and rural coverage. Data revenue grew by 40.0% YoY on the sustained growth of active data users and increased data usage. Fintech revenue increased 8.6% YoY, led by revenue from core fintech services, partially offset by the cash shortages. It is worth noting that MTNN has successfully reopened the NIBSS interface for both inbound and outbound transfers and strengthened its control systems, and now the company is well-positioned to drive the growth of active wallets and merchant ecosystems as consumer education and commercial activities progress. Digital revenue grew 41.2% YoY, driven mainly by rich media services supported by mobile advertising and content VAS. Furthermore, service revenue from the enterprise business rose by 57.1% YoY, led by the mobile and fixed connectivity services and underpinned by onboarding new customers across all segments.
   
• In 1Q23, the continued effects of foreign exchange unavailability, Naira depreciation, higher CPI index adjustments on lease rental costs, acceleration in the site rollout, and rising energy costs resulted in operating expenses increasing by 29.2% YoY. However, the impact of the higher operating expense was moderated by the cost savings realised from the expense efficiency programme and a disciplined approach to capital allocation. The costs of the company spurted on a YoY basis with a double-digit increase in almost all costs except Value added services (3.1% YoY), Transmission costs (4.0% YoY), and Interconnect costs (4.6% YoY). On the other hand, the costs of starter packs, handsets, and accessories soared 58.7% YoY to N6.3 billion in 1Q23. Moreover, roaming costs (+26.0% YoY), Advertisements (+57.4% YoY), Other Operating Expenses (+42.5% YoY), and Discounts and commissions (+22.9% YoY) increased in 1Q23. The most significant contributor to costs, direct network operating expenses, increased 27.4% YoY to N136.7 billion in 1Q23. Ultimately, the Company’s EBITDA rose by 17.7% YoY, while the EBITDA margin declined by 133 bps YoY to 53.23% in 1Q23 but remained within the company’s medium-term guidance range of 53% – 55%.
   
• MTNN recorded an operating profit of N206.6 billion in 1Q23, a 15.2% YoY growth from N179.3 billion in 1Q22. The finance income surged 57.3% YoY to N7.2 billion in 1Q23, mainly due to higher interest income on amortised cost investments. However, the finance costs also rose 44.0% YoY to N58.0 billion due to higher borrowing and net foreign exchange losses. Nevertheless, the profit before tax was reported at N155.8 billion compared to N143.6 billion in 1Q22, an 8.5% YoY rise. With a slightly higher tax rate of 35.0% in 1Q23 (1Q22: 32.6%), the net profit came in at N101.3 billion (+4.6% YoY), while the earning per share stood at N4.94 per share versus N4.76 per share in 1Q22. In the quarter, capital expenditure (including right-of-use assets) stood at N42.4 billion, down 47.8% YoY from N81.2 billion in 1Q22 due to the shortage of foreign exchange and supply chain challenges. Consequently, free cash flow vaulted 92.4% YoY to N182.1 billion in 1Q23. Going forward, MTNN plans to ramp up capex during the rest of the year to pursue growth opportunities and mitigate foreign exchange and supply chain risks.
   
• Looking at the subscriber base, the company’s mobile subscribers increased by 9.4% YoY to 76.7 million (the highest level since the operations commenced in 2001). However, it was partially impacted by the cash shortages experienced during the period. The active data users jumped 14.7% YoY to 41.2 million (active data subscribers rose by 1.7 million in 1Q23, as the company focused on enhancing the capacity and coverage of 4G and 5G networks with MTNN rolling out additional 170 5G sites in 1Q23). However, the active fintech subscribers declined 31.1% YoY to 7.4 million, moderated by the impact of the cash shortages. It should be noted that, during the quarter, MTNN further expanded its MoMo agent network by adding over 40,000 active agents, bringing the total number to approximately 264,000. In addition, the company’s instant messaging platform, Ayoba, continued to gain traction with the addition of over 1.5 million users during the quarter bringing the monthly active users to 6.7 million in 1Q23.
   
• Although 1Q23 was challenging due to the rising food and energy inflation, supply chain challenges, and local currency and foreign exchange unavailability, MTNN plans to take advantage of opportunities embedded within its connectivity and platform businesses such as Fintech. The company noted that the business started to recover from the effects of the cash shortages at the end of March 2023, with the normalisation of transaction activities expected to continue for the rest of the year. The company continues to target service revenue growth of “at least 20%” and an EBITDA margin guidance range of 53-55% over the medium term (risks being effects of inflation and foreign exchange rates, and tariff increases).
   
• On 6 March 2023, MTN Nigeria announced the successful completion of series 4 & 5 commercial paper issuance under its N150 billion commercial paper issuance programme. The issuance was completed on 1 March 2023, and the company sought to raise N100 billion. However, as the transaction was 125% subscribed, MTN Nigeria raised N125 billion. MTN Nigeria issued 188-day commercial papers at a coupon rate of 11.00% and 267-day commercial papers at a coupon rate of 12.50%. The proceeds will be used for the short-term working capital and funding requirements.
   
• On 7 March 2023, MTN Nigeria announced the successful allotment of incentive shares to shareholders who participated in the public offer and held on to at least 20 ordinary shares between 31 January 2022 and 31 January 2023. The offer included 1 free share for every 20 purchased, subject to a maximum of 250 free shares per investor in its December 2021 public offer for sale. As per the announcement, 120,359 investors (~94.77% of participants) qualified to receive the incentive shares totalling 3,977,418 ordinary shares of MTN Nigeria, which brought the total shares allotted through the offer to ~665.23 million.
   
• At the Annual General Meeting held on 18 April 2023, the shareholders approved a scrip dividend option as an alternative form of shareholder return to a cash dividend. Following the outcome of the scrip dividend election exercise, 641,047,053 new ordinary shares representing 79.8% of the FY22 final dividend will be issued and allotted once all requisite regulatory approvals have been obtained.

Market Reaction: Investor reaction to the solid 1Q23 results was subdued as the stock remained unchanged at N230.00 versus a 0.27% gain in the All-Share Index on 27/4.

MTN Nigeria Earnings Highlights 1Q23

Source: Company Financials, FSDH