MTNN delivers impressive earnings-after-tax growth of 45.5% year on year to NGN298.65bn in Q4, 2021

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The management of MTNN in the statement sent to the Nigerian investing public through the floor of The Nigerian Exchange indicated that the company is well-positioned to benefit from the structural upsides in Nigeria’s fast-growing telecommunication sector given its market leadership position (market share of 37.7%), growing 4G coverage, rising footprints in the rural areas through its MOMO agents. The statement disclosed that the mobile telecommunications networks of Nigeria (MTNN) delivered impressive earnings in 2021Full Year, reporting earnings-after-tax growth of 45.5% year on year to NGN298.65 billion which translated to an EPS of NGN14.67 (2020Full Year: NGN10.08).


The MTNN noted that the double-digit growth in PAT was driven by a combination of topline growth (+22.9% year on year) and stronger EBITDA margin (+209 bps), both of which offset the increases in network operating cost (+25.9% year on year) and net finance cost (+15.8% year on year). In 2022E, we expect earnings to be propelled by the growth in voice, data and fintech revenues, as well as improved operational efficiency. Analyst revised target price of NGN248.18 provides an upside of 25.3% based on the price of NGN198.00/share (February 11).

Growth in Subscriber Base, Data Usage and Fintech to Support Service Revenue: Service revenue grew by 22.9% year on year in 2021 Full Year, due to the broad-based expansion across voice (+9.9% year on year; 59.8% of revenue), data (+55.3% year on year; 31.2% of revenue), and value-added services (+51.9% year on year; 4.3% of revenue).  We highlight that the growth in voice revenue comes despite the decline in subscriber base (-10.5% year on year to 68.5 million in 2021FY). Management disclosed that regulatory restrictions on new SIM sales and activations led to the decline in subscriber base.


However, efforts to reverse the trend yielded results in Q4-21, as MTNN added approximately 1 million subscribers following the alignment of its SIM registration and activation centres with regulatory guidelines. We expect continued improvement in subscribers’ acquisition and forecast growth of 4.4% year on year to 71.49 million customers in 2022E. The key risk to our forecast is the National Identification Number (NIN) registration deadline of March 31, 2022. Overall, analysts at Cordros Research estimate Service revenue will grow by 17.5% year on year in 2022E, supported by growth in voice (+11.6% year on year), data (+26.5% year on year) and fintech (+23.0% year on year) revenues.


Data Revenue will Remain a Key Driver of Service Revenue: MTNN sustained the robust expansion in data revenue, as it grew by 55.3% year on year to NGN516.21 billion in 2021Full Year. Management noted that the growth was driven by increased data usage from its existing base, expanded 4G coverage, and improved network capacity to support increasing data traffic. Notably, the average MB per user rose by 62.7% year on year, enabling overall data traffic growth of 85.3% year on year in 2021Full Year. Smartphone penetration grew by 4.0 ppts to 50.0%, while 4G penetration rose to 70.3% in 2021Full Year from 60.1% in 2020Full Year. We also like the improvement in data revenue share to 31.2% in 2021Full Year (vs 24.7% in 2020Full Year and 18.8% in 2019Full Year). Data revenue has expanded tremendously from NGN67.8 billion in 2016Full Year to NGN516.21 billion in 2021Full Year, implying a 5-year CAGR of 50.1%.

It is pertinent to note that MTNN acquired and activated an additional 800MHz spectrum in Q1, 2021. Furthermore, the company was awarded the bid (at an auction held in December 2021) to acquire a 100MHz spectrum licence in the 3.5GHz band to roll out 5G services. Management expressed optimism that 5G will provide the foundation upon which future network performance will be built. We believe this will give the company a competitive advantage over its peers, given that it is the only mobile network operator (MNO) to be awarded a 5G license. In addition, we believe the country favourable demographics underpinned by the large population (estimated at c. 200 million) with a median age of 19, rising adoption of social media platforms for communication and digital marketing, and increasing internet penetration are key drivers of data revenue. Accordingly, we estimate data revenue will grow by 26.5% in 2022E. Further out, we project data revenue will grow by an average of 25.7% over 2022E-2026E, while the data revenue share will rise to 43.2% in 2026E from 33.6% in 2022E.

Revenue Growth to Sustain Expansion in Margins Despite Elevated OPEX: Despite the faster increase in network operating costs (+25.9% year on year) compared to revenue (+22.9% year on year), EBITDA grew by 27.9% year on year to NGN877.07 billion in 2021Full Year. MTNN sustained its operational efficiencies as OPEX/revenue improved to 23.4% in 2021Full Year (2020Full Year: 26.0%). Accordingly, the EBITDA margin expanded by 209bps to 53.0% in 2021Full Year. We expect network operating costs to remain elevated in 2022E given the pass-through impact of the Naira devaluation on BTS lease cost, the continued rollout of 4G sites to improve 4G coverage, and maintenance-related expenses. Notwithstanding, we expect revenue growth and operational efficiencies to limit the overall impact on margins. For 2022E, we estimate EBITDA growth of 18.8% y/y to NGN855.72 billion, with an accompanying EBITDA margin of 53.6% (+60 bps year on year). Further out, we project EBITDA margin will average 54.8% over 2023E-2026E, hitting a peak of 55.4% in 2026E. 

Analysts are of opinion that the estimate a Profit After Tax (PAT) of NGN401.58 billion (+34.5% year on year) in 2022E, translating to an EPS estimate of NGN19.73/share (2021Full Year: NGN14.67). On our 2022E EPS, we estimate a DPS of NGN17.64/share, representing an increase of 34.5% from NGN13.12 paid in 2021FY and a dividend yield of 8.9% based on the price of NGN198.00/share (February 11). The net impact of our changes is an increase in our target price to NGN248.18 (previously; NGN226.48/share), implying a potential upside of 25.3% based on the price of NGN198.00/share (February 11). Consequently, we upgrade our rating to a “BUY” from “HOLD”. On estimates, analysts predicted that MTNN trades at a 2022E P/E of 10.0x and EV/EBITDA of 4.8x compared to EM peers average of 20.7x and 6.6x, respectively

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