November 20, 2023/United Capital Research
MTN Nigeria Communications Plc (MTNN or the Company) has reported its unaudited 9M-2023 result, revealing a noteworthy 21.8% y/y increase in revenue, reaching N1.8tn. Despite this positive topline growth, the Company faced challenges as operating expenses surged by 26.8% y/y to N1.2tn, and finance costs accelerated by 173.4% y/y, totalling N397.1bn. Thus, MTNN’s Profit Before Tax (PBT) declined by 42.0% y/y to print at N232.5bn. Below, we highlight key aspects of the Company’s performance and provide expectations for FY-2023.
Rising Costs and Foreign Exchange Pressures Abrade Revenue Growth
MTNN achieved a year-on-year revenue growth of 21.8%, reaching N1.8tn. Breaking down the revenue categories, all revenue lines posted decent growth. In the examined period, “Data services” surpassed “Voice” to become MTTN’s highest contributor to total revenue. This accounted for 42.2% of the total revenue (up from its 37.7% contribution in 9M-2022). Revenue from Data upsurge by 36.3% y/y reaching N748.3bn. The surge was driven by the company’s initiatives to expand internet penetration. MTNN noted that its active data users increased by 13.3% y/y reaching 43.1mn, adding 3.6mn active users in 9M-2023. Data usage per user increased by 29.1% y/y to 8.6GB, and the number of smartphones on the MTNN network increased by 7.6%, bringing smartphone penetration to 53.4%, up 1.4ppt y/y.
In the period, revenues from “Voice” increased by 11.8% y/y totalling which constitutes N700.6bn of the total revenue (down from its prior reading of 43.0% contribution in 9M-2022). The growth in Voice revenues could largely be attributed to the rural penetration efforts of the Company. The Company recorded a 4.8% y/y increase in its subscriber base, enlisting additional 2.0mn mobile subscribers to increase its mobile subscription to 77.8mn in the given period. The third most prominent contribution to MTNN’s total revenue was “interconnect and roaming services” which contributed 7.2% to the Company’s total revenue with an 8.3% y/y increase to settle at N127.2bn.
In the period, Handset & Accessories and Digital (Bulk SMS and USSD) emerged as the most rapidly growing segments (of the overall revenue) when compared with other toplines. These segments expanded by 59.7% y/y and 52.2% y/y to N5.5bn and N27.2bn, respectively. Both segments contributed a combined 1.8% of total revenues in the reviewed period.
Meanwhile, MTNN experienced significant increase in costs during the period, with total operating expenses advancing by 26.8% y/y to N1.2bn. The bulk contributor to costs was direct network operating expenses, which surged by 34.0% y/y to N447.6bn. This rise was primarily driven by the substantial increase in energy and maintenance costs related to towers covered under the BTS lease agreements. Additionally, the introduction of VAT on tower leases, effective September 2023, as outlined in the 2023 Finance Act, further contributed to the escalation in the Company’s costs. Thus, BTS leases increased 40.0% y/y to N339.5bn, accounting for 75.9% of direct network operating expenses (OPEX). Moreover, the Company witnessed a substantial increase in finance cost during the reviewed period, surging by 173.4% y/y to N397.1bn. The surge in Finance costs was due to increased borrowings and a forex loss of N232.8bn on MTNN’s currency liabilities emanating from the rapid depreciation of the Naira. Additionally, an unrealized forex loss of N87.5bn on outstanding matured trade obligations as of 30-Sept-2023 contributed to the rise in the overall finance costs. Furthermore, net finance costs climbed expressively by 174.4% y/y to N376.0bn. This occurred despite a 157.1% y/y increase in finance income amounting to N21.1bn, attributed to improved interest earned on investments. Nonetheless, MTNN’s EBITDA increased by 16.3% y/y to N907.93bn in the period, despite the 23.3% y/y increase in depreciation and amortization expenses totalling N299.5bn. Similarly, MTNN’s operating profit rose by 13.2% y/y to N608.4bn. Conversely, EBITDA margin (-2.4ppt) and operating margin (-2.1ppt) declined to 51.2% and 34.3%, respectively.
Outlook: Continued Upside Potential Driven by Strong Topline Growth.
Despite facing challenges in the operating environment, looking ahead, we maintain a positive outlook for MTNN. Our positive outlook is based on the expectation of ongoing growth in revenues coupled with improved operational efficiency. Consequently, we expect consistent growth in MTNN’s revenue segments. At the same time, “data” will continue to be the most significant contributor as per revenues per user (RPU). We foresee RPU growing by 42.3% y/y in FY-2023 and smartphone penetration expanding to 62.3%. In addition, we see a significant expansion of 5G network coverage.
That said, we believe MTN Nigeria Communications Plc will continue leveraging the strengths within its growing segments while reducing cost shocks to maximise shareholders’ value. Subsequently, we project a N283.10/share Target Price (TP) for FY-2023, with an 18.2% upside from the current price of N239.50. Thus, we recommend a BUY rating on the ticker.
