November 20, 2024/Cordros Report
MTNN’s numbers showed a return to profitability in Q3-24 standalone, highlighting the impact of the successful renegotiation of tower leases with IHS, which resulted in cost savings with a modest impact on EBITDA and earnings. Specifically, EBITDA margin though still weaker y/y, improved from the multi period low in Q2-24 (31.9%) to 37.6% in Q3-24 standalone, with EPS also turning positive (NGN0.20). Notwithstanding, 9M-24 still points to another significant loss-making year, despite the aforementioned positives, highlighting the outsized impact of the currency devaluation and unwinding of letter of credit obligations to c. USD57.00 million (H1-24: c. USD100.00 million | 2023FY: USD416.60 million). In this update, we note a slight increase in our TP to NGN220.39/s (previously: NGN218.80/s) as we raise our revenue growth expectations and adjust EBITDA to more adequately reflect the impact of the tower lease renegotiation. While currency risk still presents as a significant downside, we affirm our “BUY” rating and point to a 28.1% upside potential from the last closing price of NGN172.00 (November 20). On our estimates, MTNN is trading on a 2024E EV/EBITDA of 3.6x (Bloomberg MEA: 5.3x).
Margin accretion to be sustained: We now project a +29.2% y/y (prev.: +24.0% y/y) growth in revenue for MTNN in 2024E in line with management guidance (high-20.0% to low-30.0%) on higher ARPU (+25.0% y/y) amid a marginal 1.4% y/y increase in mobile subscribers to 80.85 million subscribers. We expect the bulk of the growth to come from data revenue (+35.5% y/y), driven by sustained usage amid continuous investments in enhancing data network capabilities. Meanwhile, even as we now expect a slower pickup on subscriber count (+1.4% y/y), highlighting compliance with the NCC’s regulations on SIM registration, we still expect a steady double-digit increase in voice revenue. We forecast an EBITDA margin print of 37.0% (9M-24: 36.4%) as we account for the successful renegotiation of IHS tower lease agreements, which should drive further margin recovery in Q4-24, just as seen in Q3-24. Management now expects a 2024E EBITDA margin to settle between 35.0% – 37.0%. With a better operating margin and net FX loss estimate of NGN904.12 billion, we now project a loss per share of NGN18.31.
Higher FCF margin expected: We reiterate MTNN’s strong performance despite the headwinds in the operating environment. Specifically, MTNN’s positive FCF generation still highlights a strong cash conversion at the operating level. We now expect MTNN’s FCF margin to surpass our projection at the start of the year (16.8%), with additional support stemming from the aforementioned improved EBITDA margin estimate. Precisely, we now forecast FCF margin of 25.3% for 2024E (9M-24: 20.6%), beating last year’s (17.5%) and the historical five year average (15.4%).
Valuation: Our year-end target price is NGN220.39/s, derived from a 70/30 blend of DCF and sector-relative valuation estimates. Our DCF FV is derived from an equal blend of FCFF (NGN213.48/s) and FCFE (NGN189.66/s) estimates, assuming a 21.4% WACC, 27.0% CoE and 4.0% terminal growth rate. We utilised the EV/EBITDA multiple for our multiple-based FV and derived a fair value of NGN264.32/s based on Bloomberg’s Middle East and African peer average (5.3x).
