November 9, 2023/Cordros Report
We update our views and estimates on MTNN for 2023E, following the publication of the company’s 9M-23 financials. As envisaged in our previous update (see our MTNN H1-23 Earnings Update here) the impact of currency devaluation was significantly felt in Q3-23 as EBITDA (-240bps y/y) and PBT (-14.40ppts y/y) margins declined in the period, given the adjustment of the MTNN’s tower contracts costs to a higher reference rate. Nonetheless, there was only a marginal reduction of our TP by 0.6% to NGN295.05 (previously: NGN296.57) as our previous estimates already accounted for the expected pressure in Q3-23. However, we upgrade our rating to “BUY”, given the current market price of the stock which we believe presents a significant upside opportunity. Notwithstanding the current pressure on margins, we remain positive on MTNN’s ability to sustain its growth trajectory across its key value channels, still supported by its continuous ramp-up of gross connections and capacity roll-outs. We estimate a total DPS of NGN10.27 in 2023E, which would translate to a dividend yield of 4.4%. On our estimates, MTNN is trading on a 2023E P/E of 20.2x and EV/EBITDA of 4.6x.
Strong fundamentals despite pressures: Interestingly, data revenue surpassed voice revenue as the largest contributor to total revenue, highlighting the impact of MTNN’s strategic intent on maxmizing value from the segment. We expect this resilience to be sustained for the remainder of the year and thus project a 29.7% y/y growth in data revenue. On voice revenue, we project a 13.6% y/y growth with most of the support still coming from an expected increase in subscriber base and sustained usage of MTNN’s voice propositions. We maintain our estimate of a 5.0% y/y increase in MTNN’s subscriber base to 79.30 million by year-end 2023 (2022FY: 75.60 million). Overall, we project revenue growth of 20.3% y/y for 2023E and model an average growth of 15.7% in 2024-2027E. We project a 325bps y/y decrease in MTNN’s 2023E EBITDA margin, reflecting heightened cost pressures from the higher FX pricing on tower costs, impact of the new VAT on tower leases and the highly inflationary environment. Consequently, we forecast that MTNN EPS will decline to NGN11.61 (2022FY: NGN17.63), highlighting the one-off impact of the steep FX depreciation in H1-23.
Key profitability ratios dwindle: Following our expectations of higher costs pressures on margins, we expect a dip – albeit temporarily – in key profitability ratios. Specifically, we project 2023E ROE, ROA and ROIC to print 92.9% (5-yr average: 108.1%), 8.4% (5-yr average: 13.2%) and 54.4% (5-yr average: 58.3%), respectively. Also, we expect a negative FCF margin print (-3.9% | 5-yr average: 6.4%).
Valuation: Our year-end target price is NGN295.05/s, derived from a 60/40 blend of DCF and sector relative valuation estimates. Our DCF FV is derived from an equal blend of FCFF (NGN311.29) and FCFE (NGN364.84) estimates, assuming a 17.0% WACC and 4.0% terminal growth rate. Similarly, our multiple-based FV was derived from a blend of EV/EBITDA (NGN256.24) and P/E (NGN153.70) multiples, utilising Bloomberg’s Middle East and African peer averages for both factors (5.0x and 13.2x, respectively) as multipliers.
