FSDH Initial Reaction: MTN Nigeria 3Q23 results 
Kindly click here to download the report.

October 31, 2023/FSDH Research

Key Performance Highlights:

• On 30 October 2023, MTN Nigeria reported its 3Q23 results, registering double-digit growth of 21.4% YoY to N614.2 billion in 3Q23. The service revenue jumped 20.9% YoY to N610.2 billion in 3Q23, primarily driven by a 38.9% YoY spurt in data revenue to N279.5 billion (45.8% of service revenue), a 7.7% YoY growth in voice revenue to N271.3 billion (44.5% of service revenue), further supported by a 65.3% YoY rise in digital revenue to N9.4 billion (1.5% of service revenue) and a marginal 1.4% YoY growth in Fintech revenue to N21.1 billion (3.5% of service revenue). Voice revenue rose 7.73% YoY on increased usage supported by revamped voice proposition and customer value management (CVM) initiatives. Data revenue grew by 38.9% YoY on the sustained growth of active data users and increased data usage. Fintech revenue increased 1.4% YoY, led by revenue from core fintech services, partially offset by the cash shortages. Digital revenue grew 65.3% YoY, driven by increased adoption of digital products and the growth of the active base. Furthermore, service revenue from the enterprise business rose by 14.3% YoY, led by the mobile and fixed connectivity services and underpinned by onboarding new customers across all segments.
   
• In 3Q23, direct network operating costs soared 44.5% YoY to N170.6 billion, mainly due to higher lease rental costs impacted by the currency devaluation, higher consumer price index (CPI) and energy costs, and the 2023 Finance Act, introducing VAT on tower leases effective September 2023. However, the impact of the higher direct network operating expense was moderated by the Company’s expense efficiency drive. The Company’s costs vaulted on a YoY basis with a double-digit increase in all categories as the value-added services were up 12.4% YoY to N6.3 billion. Transmission costs surged 64.9% YoY to N3.1 billion, interconnect costs increased 10.2% YoY to N39.2 billion, and the costs of starter packs, handsets, and accessories jumped 30.8% YoY to N7.2 billion in 2Q23. Moreover, roaming costs (+31.3% YoY), Advertisements (+71.2% YoY), Other Operating Expenses (+35.9% YoY), and Discounts and commissions (+23.3% YoY) increased in 3Q23. Another major contributor to costs, employee costs, grew 59.1% YoY to N17.1 billion in 3Q23. As a result, the Company’s EBITDA rose by a mere 8.2% YoY, while the EBITDA margin contracted 582 bps YoY to 47.8% in 2Q23.
   
• MTNN recorded an operating profit of N186.9 billion in 3Q23, a marginal 0.8% YoY growth from N185.4 billion in 3Q22. The finance income surged 311.5% YoY to N4.7 billion in 3Q23 due to higher interest income on investments. However, the finance costs spiraled 192.8% YoY to N159.5 billion, primarily due to net foreign exchange losses that grew 7.1x YoY to N101.4 billion in 3Q23. MTNN’s finance costs were impacted by the Naira’s devaluation from N461.10/$1 in December 2022 to N777.00/$1 in September 2023 following the CBN’s policy change. Consequently, the profit before tax fell 75.7% YoY to N32.1 billion compared to N132.0 billion in 3Q22. With a slightly higher tax rate of 41.8% in 3Q23 (3Q22: 33.8%), the net profit further declined to N18.7 billion (-78.6% YoY), while the earnings per share stood at N0.93 per share versus N4.22 per share in 3Q22. In 3Q23, capital expenditure (including right-of-use assets) stood at N138.2 billion, up 105.2% YoY from N67.4 billion in 3Q22. Consequently, free cash flow decreased 23.9% YoY to N155.3 billion in 3Q23.
   
• Looking at the subscriber base, the Company’s mobile subscribers increased by 4.8% YoY to 77.6 million (the highest level since the operations commenced in 2001). The active data users jumped 13.3% YoY to 43.3 million. However, the active fintech subscribers declined 20.3% YoY to 8.9 million, moderated by the impact of the cash shortages. In addition, the Company’s instant messaging platform, Ayoba, continued to gain traction, adding over 0.8 million users during the quarter, bringing the monthly active users to 8.0 million in 3Q23.
   
• On 12 September 2023, MTN Nigeria announced that the Nigerian Communications Commission (NCC) approved the transfer of 10MHz in the 2.6GHz band from OpenSkys Services to the Company. The spectrum licence is valid for ten years and will run from 7 September 2023 to 16 April 2033. The spectrum is expected to enable MTN Nigeria to roll out its network capacity more efficiently. On 7 September 2023, MTN Nigeria announced the reallocation of the leases for tower services of ~2.5k network sites due to expire in 2024 and 2025, for which IHS Nigeria Limited (IHS) provides tower services. After a transparent and competitive tender process, ATC Nigeria Wireless Infrastructure Solutions Limited (ATC) was selected as the preferred tower company to provide tower services to those sites. ATC will take over the provision of tower services for the sites from 2025.
   
• In August 2023, MTNN signed a $125 million trade facility with Access Bank UK and raised N125 billion through commercial paper in line with the Company’s funding strategy to support capex deployment. Looking at the Company’s debt, ~51% of MTNN’s debts have fixed interest rates, while 49% have floating rates. Out of total debts,  83% of debts are local currency-denominated (60% including short-term trade loans for letters of credit establishment). Additionally, debt metrics remain well within the financial covenants, with a net debt-to-EBITDA ratio of 0.7x and a cash balance of N224.9 billion.
   
• Separately, the Company has received the judgment issued by the Tax Appeal Tribunal sitting in Lagos. The judgment pertains to the VAT assessment for the 2007 and 2010 – 2017 periods, as the Federal Inland Revenue Service (FIRS) issued to the Company. The Company mentioned in the press release that it will issue a separate and comprehensive statement articulating its position. Furthermore, MTN Nigeria’s capital markets day is scheduled for 14 and 15 November 2023 in Abuja, where the Company will update the market on progress in executing the Ambition 2025 strategy.

 
Market Reaction: Investor reaction to the 3Q23 results was subdued as the stock declined 0.20% to N246.00 versus a 1.45% gain in the All-Share Index on 30/10.

MTN Nigeria Earnings Highlights 3Q23

Source: Company Financials, FSDH