October 31, 2024/Cordros Report
MTN Nigeria Communications Plc (MTNN) released Q3-24 unaudited results after the close of business yesterday (30 October). The company reported a standalone profit after tax of NGN4.13 billion for Q3-24 (-94.2% y/y), with EPS at NGN0.20, highlighting the first positive print since Q3-23 (NGN3.41). Consequently, 9M-24 loss per share stood at NGN24.51 (vs loss per share of NGN0.68 in 9M-23).
Service revenue grew by 35.4% y/y in Q3-24 (9M-24: +33.6% y/y) due to the broad-based expansion across all business segments – Voice (+16.9% y/y; 38.1% of revenue), Data (+48.3% y/y; 39.9% of revenue), Digital (+109.9% y/y; 2.4% of revenue), Fintech (+32.3% y/y; 3.4% of revenue), and Others (+62.6% y/y; 5.6% of revenue).
Management attributed the growth in voice revenue to higher subscriber minutes and effective customer value management initiatives. We highlight that the growth in voice revenue was despite a 0.8% y/y decline in subscriber base to 77.00 million (with a net decrease of 2.40 million in Q3-24), influenced by the Nigerian Communication Commission’s (NCC) directive on NIN-SIM linkage.
Meanwhile, data revenue growth was driven by increased data usage. Specifically, average data usage per customer grew by 31.2% y/y to 11.2 GB, with total data traffic up by 42.1% as of 9M-24. Additionally, the company added c.1.00 million new home broadband subscribers over the period. However, the total data subscriber base declined by 300,000 to 45.30 million in Q3-24, impacted by the NIN-SIM linkage directive.
In addition, growth in value-added services, including digital and fintech offerings, was driven by higher adoption of MTN Xtratime and other digital products. Furthermore, MTNN’s mobile money (MoMo) segment achieved a 16.6% y/y increase in transaction volume despite reductions in the agent network (-81.5% to 54,000, with a net decrease of 185,000 in Q3-24) as the company streamlined their sales force and prioritised service optimization.
Further down, the growth in operating expenses (+76.4% y/y | 9M-24: +95.9% y/y) outpaced revenue growth, resulting in a 10.19ppts contraction in the EBITDA margin to 37.6% (9M-24: -14.92ppts to 36.3%). We note that the rise in OPEX still reflects persistent currency pressures, the highly inflationary environment and elevated energy costs. Markedly, EBITDA margin expanded by 570bps q/q, the first expansion since Q4-23, as the renegotiated tower lease contracts led to cost savings of c. NGN54.00 billion during the period.
Net finance costs increased by 73.1% y/y in Q3-24, driven by a rise in finance costs (+94.0% y/y) following increased interest expenses on leases (+203.8% y/y) and borrowings (+105.7% y/y) reflecting the elevated interest rate environment, naira depreciation and new lease additions from the tower lease renegotiation. Meanwhile, net FX loss declined by 11.9% y/y in Q3-24 but surged by 90.8% y/y in 9M-24, reflecting the significant exchange losses incurred in Q1-24 (NGN656.37 billion).
Overall, pre-tax profit declined by 65.6% y/y to NGN37.66 billion, while profit after tax declined by 94.2% y/y to NGN4.13 billion after a tax expense of NGN33.53 billion.
Comment: We like MTNN’s return to profitability in the quarter amid sustained challenges from currency fluctuations, elevated interest rate environment and high energy costs. We also point out the successful renegotiation of tower leases with IHS, which lowered the US dollar-indexed portion, resulting in cost savings with a modest impact on EBITDA and earnings. In Q4-24, we expect sustained earnings recovery buoyed by cost savings from tower renegotiations. Our estimates are under review.
