October 30, 2023/Cordros Report
MTN Nigeria Communications Plc (MTNN) released its Q3-23 unaudited results this morning, showing a decrease in standalone EPS to NGN0.93 (Q3-22: NGN4.22), bringing 9M-23 EPS to NGN7.06 (9M-22: NGN12.89). Just as in H1-23, the dip in earnings was driven mainly by higher expenses (+36.6% y/y) and a marked expansion in net finance costs (+190.2% y/y).
Revenue grew by 21.4% y/y in Q3-23 (9M-23: 21.8% y/y), underpinned by a broad-based increase across the voice (+7.7% y/y), data (+38.9% y/y), digital (+65.3% y/y), fintech (+1.4% y/y) and others (+14.3% y/y) channels.
Quite notably, data surpassed voice as the largest contributor to revenue, contributing 45.5% of the total outturn in the period. Management alluded that the revamp of data bundle offerings and an increase in its smartphone penetration amid sustained investments to expand coverage, capacity and enhance customer experience underpinned the impressive growth in data revenue.
The growth in voice revenue (44.2% of total revenue) was delivered mainly through an increased usage of MTNN’s voice propositions and a growing base. Pertinently, MTNN’s subscriber base (Q3 net additions: +0.50 million) grew to 77.60 million as of 9M-23, with the addition of 2.00 million subscribers.
During the quarter, total expenses grew by 36.0% y/y (9M-23: +28.0% y/y), owing to (1) higher lease rental costs given the impact of the currency devaluation and highly inflationary environment and (2) energy costs.
Consequently, EBITDA margin (-582bps y/y) declined to 47.8% y/y, falling short of management’s medium-term key performance guidance (53.0% – 55.0%). For 9M-23, EBITDA margin declined by 240bps y/y to 51.2%.
Net finance costs (+190.2% y/y) rose markedly in Q3-23 as a significantly higher foreign exchange loss (Q3-23: NGN101.38 billion | Q3-22: NGN14.24 billion) influenced a 192.8% y/y growth in finance costs. The higher FX loss balance points to the impact of the currency devaluation on MTNN’s finance charge. Meanwhile, finance income grew markedly by 311.5% y/y.
Overall, pre-tax profit declined by 75.7% y/y to NGN32.08 billion in Q3-23. Following an effective tax rate of 41.8% (Q3-22: 33.8%), profit after tax printed NGN18.68 billion (-78.6% y/y).
Management call this afternoon at 3.00 p.m. Nigerian time. Click here to register.
Comment: As we envisaged, the impact of the currency devaluation was significantly felt in Q3-23 operating and profitability margins, given the adjustment of MTNN’s tower contracts costs to a higher reference rate. Even as we expect MTNN’s key fundamentals to remain strong for the rest of the year, we believe the impact of the currency devaluation will remain an inhibiting factor to profitability expansion. Our estimates are under review.
