April 3, 2024/CSL Research

In FY 2023, MTN Nigeria saw substantial growth driven primarily by double-digit increases in both voice (+10% y/y to N1.14 billion) and data revenue (+40% y/y to N1.07 billion), despite experiencing inflationary pressures on Operating Expenses (+26.80% y/y to N615.82 billion). For 2024, we anticipate MTN Nigeria will sustain its robust topline growth. Our projections indicate a 45% y/y growth in data revenue and an 8% y/y growth in voice revenue. Overall, we forecast a 26.1% y/y increase in Revenue to N3.11 trillion in 2024 from N2.47 trillion in 2023.

MTNN was impacted significantly by the devaluation of the Naira resulting in the company reporting a huge Loss Before Tax of N177.8bn in FY 2023 compared with a Pre-tax Profit of N518.82bn in FY 2022, completely wiping out shareholders’ funds. The company reported a massive FX loss of approximately N740bn in 2023 compared with only N81bn in FY 2022. The significant FX loss recorded in Q4 2023 could be attributed to the revaluation of the company’s tower lease contracts and foreign borrowings in Q4 2023.

We anticipate that with the country’s exchange rate stabilizing at current levels, MTN will return to profitability in 2024. Our forecast suggests a Profit Before Tax (PBT) of N105.73 billion for 2024. However, we do not expect the company to fully restore its shareholders’ funds this year. We project an improvement in shareholder funds to negative N5.76 billion from the negative N45.04 billion in 2023. A complete recovery is anticipated by the year end 2025.

We have revised our target price down to N257.91/s from N325.30/s, reflecting the decline in the company’s operating performance. However, we maintain our BUY recommendation on the stock. Our target price suggests an upside potential of 11.20% compared to the last closing price of N232/s on 02 April. We arrived at this target price using a combination of Discounted Cash Flow (DCF) and Relative valuation methods, with a weighting of 60:40 respectively. Currently, MTN trades at an EV/EBITDA ratio of 5.5x, slightly below its industry average of 5.7x

MTN FY 2023 N’m

In its recently released FY 2023 results, MTN Nigeria sustained its Revenue growth momentum, reporting a 22.7% y/y growth in Revenue to N2.47tn from N2.01tn in FY 2022. On a q/q basis, Revenue increased by 13.3% to N695.90bn in Q4 2023 from N614.21bn in Q3 2023. The growth in service revenue (up 22.4% y/y) remained the major driver of the rise in total Revenue. Data revenue growth remained strong in 2023, increasing by 39.8% y/y to N1.07tn from N764.82bn in 2022. The growth was supported by the revamp of the company’s data bundle offerings, an increase in the penetration of smartphones, and investments made to expand coverage and capacity to enhance customer experience.

The company noted that its active data users increased by 12.7% y/y to 44.6 million for FY 2023. It’s 4G network now covers 81.5% of the population, up from 79.1% in December 2022, and its 5G network covers 11.3% of the population, up from the 7.5% recorded in 9M 2023. Smartphone penetration rose to 55.6% (up 3.1ppt y/y), underpinning data usage (GB per user) growth of 29.1% to 8.6GB from 5.74GB. As a result, the company recorded a 44.9% growth in data traffic, with the 4G network accounting for 81.8% of the total traffic.

We maintain that the ongoing expansion of the company’s 4G and 5G spectrum will drive significant growth in data subscribers over the medium to long term, as customers enjoy enhanced satisfaction when accessing and sharing content online. Additionally, anticipated increase in data tariffs should bolster data revenue. Therefore, we project a 45% growth in data revenue to N1.55 trillion in 2024, up from the N1.05 trillion recorded in 2023. Furthermore, we anticipate that the contribution of data revenue to overall revenue will improve to 50%, compared to 43% in 2023.

Voice revenue grew 9.7% y/y, reaching N1.14 trillion in FY 2023. This growth was attributed to the expansion of the company’s mobile subscriber base and increased usage, fueled by the firm’s customer value management initiatives and enhanced voice offerings. MTNN added 4 million subscribers, a 5.3% y/y increase in its subscriber base, reaching 79.7 million for FY 2023. We anticipate that the growth in voice revenue will continue to slow down due to the ongoing shift towards a data-centric model, driven by the increasing penetration of smartphones and the rising number of data users. We believe increased investments in infrastructure, especially in the rural areas will support growth in voice revenue in the short to medium term (though we expect contribution from voice revenue to continue to decline amidst faster growth in data revenue). That said, the barring of sims associated with the continued NIN-SIM debacle continues to pose a threat to voice revenue growth. We forecast voice Revenue will grow by 6% to N1.23tn in 2024e from N1.13tn in 2023. We also estimate the contribution of voice Revenue to overall Revenue will moderate to 40% in 2023e from 46.07% in 2023.

We note an improvement in Fintech Revenue, up 2.4% y/y to N86.43bn. We note that the introduction of KYC for fintech businesses in Q4 2024, distorted the growth in the company’s subscriber base, resulting in a decline of 2.7% to 14.5 million subscribers in 2023 from 14.9 million subscribers in 2022. The company noted that the growing adoption and increased activity within its fintech ecosystem spurred transaction volume growth of 49.2% y/y, increase in the number of MoMo agents to 326k, up 46.0%y/y, and over 324k since the company started to build out its merchant ecosystem in March 2023. The growth of the company’s fintech business has remained slow, but given its large subscriber base, we believe the fintech business will scale in the medium to long term. We forecast a 10% y/y growth in 2024e, with the contribution of fintech revenue to total revenue to rise to 5% from the current 3.5% in 2023.

In FY 2023, Digital Revenue surged by 69.9% year-on-year to N37.46 billion. Management highlighted that this growth was fueled by the optimization of digital service offerings, improved customer journey, and strengthened partnerships. Consequently, the active user base for digital services expanded significantly, with rich media subscriptions (excluding Ayoba) increasing by 57.2% year-on-year to approximately 8 million. Additionally, the company’s instant messaging platform, Ayoba, experienced a robust growth of 65.6% year-on-year, reaching 8.6 million active monthly users.

The company continues to drive the onboarding of new partners within its digital ecosystem and expand the bouquet of service offerings to sustain the growth of the business. We forecast a 65% y/y growth in digital revenues in 2024e, with contribution to total revenues expected to rise to 2.1% from 1.6% in 2023.

Overall, we have forecasted a 26.1% y/y growth in total revenues to N3.11tn in 2024 from the N2.47tn recorded in 2023.

Growth in Direct Network Operating Costs surpassed Revenue growth, climbing by 42.6% y/y to N650.50bn in FY 2023 from N456.25bn in FY 2022. Operating Expenses rose by 26.80% y/y to N615.82bn in FY 2023 from N485.65bn in FY 2022. The company attributed the increase in OPEX to the combined effects of the Naira devaluation, higher general inflation and energy costs, and the introduction of the 2023 Finance Act VAT on tower leases. Despite that, EBITDA increased by 12.3% y/y to N1.20bn in FY 2023 from N1.07bn in FY 2022. However, EBITDA margin shrunk, by 448bps y/y to 48.7% in FY 2023.

Operating Profit grew by 5.4% y/y to N773.66bn in FY 2023 from N734.164bn in FY 2022 despite an increase in Depreciation & Amortisation by 27.56% to N428.87bn in FY 2023. Looking ahead, we expect EBITDA margin to continue to be impacted by the new VAT on tower leases, record breaking inflation levels and increased energy costs. Consequently, we expect the company’s EBITDA margin to decline to 46% from the 49% recorded in 2023.

Net Finance Cost increased, up 58.11% y/y to N211.11bn in FY 2023 from N133.52bn in FY 2022. The elevated Net Finance Cost mirrors the 60.9% y/y increase in Finance Cost despite an 87.5% y/y rise in Finance Income. The increase in Finance Income was driven by higher interest earned on amortized investments, while the rise in Finance Cost could be attributed to a rise in Interest expense on borrowings and leases. In 2023, the company witnessed a significant rise in FX losses due to the Naira devaluation. The company recorded FX losses of N740.43bn in FY 2023, up 804.9% from the N81.82bn recorded in FY 2022. We note that the company reported N507.60bn of the FX losses in Q4 2023, a significant rise from the N232.83bn recorded in 9M 2023.

In analysing the company’s lease contracts, we note that 55% -60% of the company’s tower contracts are indexed to the USD (NAFEX rate) with the exchange rate adjusted at the start of each quarter. 70% of the contracts are adjusted based on the prior quarter-end rate, while the remaining 30% are adjusted based on the prior quarter average rate. Looking ahead, we forecast FX losses of N379.72bn in 2024 from the N740bn recorded in 2023. Our forecast is based on our estimated average exchange rate of N1448.71/US1$ in 2024 in revaluing the company’s foreign exchange backed liabilities.

Due to the impact of the FX losses, the company reported Pre-tax loss of N177.89bn in FY 2023 compared with Pre-tax profit of N518.82bn in FY 2022, completely wiping out its shareholder funds. Consequently, a Net loss of N137.02bn was reported in FY 2023 compared with a Net Profit of N348.73bn in FY 2022. EPS declined to negative N6.38/s in FY 2023. In our view, if the country’s exchange rate remains at current levels, MTN will return to profitability in 2024. We have forecasted a PBT of N105.73bn in 2024e. However, we do not believe the firm will restore its shareholders’ funds this year. We estimate the company’s shareholder funds will improve to a negative position of N5.76bn from a negative position of N45.04bn in 2023. We believe the company shareholder funds will be restored in 2025.

In December 2023, the NCC issued an industry-wide directive requiring full barring of subscriber lines not linked to their NIN. The management noted that since the directive, they have had approximately 19 million lines going through the verification process, of which 4.3 million had been verified as of 28 February 2024. They further stated that approximately 4.2 million lines have been disconnected, noting that several of these lines were low-value subscribers, minimising the revenue impact. We believe the barring of affected lines will have a negative impact on the growth of the company’s voice subscribers in the short term.

Valuation

We have revised our target price down to N257.91/s from N325.30/s, reflecting the decline in the company’s operating performance. However, we maintain our BUY recommendation on the stock. We arrived at this target price using a combination of Discounted Cash Flow (DCF) and Relative valuation methods, with a weighting of 60:40 respectively. Currently, MTN trades at an EV/EBITDA ratio of 5.5x, slightly below its industry average of 5.7x.

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​MTNN FY 2023 Earnings Review.pdf​