Following the listing of 20.3bn units of its shares on the premium board of the Nigerian Stock Exchange (NSE) at a price of N90 per share, MTN Nigeria (MTNN) share price gained 46.3% to close at N131.70/s on Tuesday, 21 May; only four days post listing. The current market capitalisation of N2.68trn makes it the second most capitalised stock on the Nigerian Stock Exchange.
Having overcome some serious corporate governance issues which resulted in the exit of some of its top executives, disconnection of over 11 million subscribers, a calculated fine of N1.04trn, and public embarrassment, the company appears relentless in its determination to excel. It has made significant strides in resolving its regulatory issues.
A Market Leader: MTNN is undoubtedly the market leader in the Nigerian telecommunications market. According to Nigerian Communications Commission (NCC), the firm has the largest market share by subscriber base, with c.37% market share as at March 2019 while Globacom (27%), Airtel (26%) and 9mobile (10%) follow in that order. MTNN contributes c.50% to the total revenue generated in the industry. The telecommunications sector which contributes c.9.9% to GDP and recorded a strong growth of 11.3% in FY 2018 still holds growth prospects given Nigeria’s large population (197 million) and expected growth (adding 5 million a year until 2022).
Forecast: Hence, we believe that given its market-leading presence and superior brand name, MTN Nigeria is well positioned to benefit from the growth in the sector. We see strong growth potential for MTN considering mobile penetration rate of 8% (as at Q1’2019) which could help in driving voice (accounting for 74.9% of revenue as of Q1 2019) and data revenue (accounting for 16.6% of revenue as of Q1 2019).
Nigeria’s youthful population also serves as an opportunity for growth in data revenue given the growing usage and acceptability of social media and internet surfing for communication. The development of advanced technology such as the 5G technology as well as increasing coverage of 4G network should also support growth in data revenue in the medium to long term.
The expected recovery in consumer spending should provide a further boost to data bundle consumption. This is premised on lower Average Revenue per User (ARPU) for Nigeria compared to South Africa due to better living conditions (higher GDP per capital, higher minimum wage, and lower unemployment level). Lastly, approval of the payment service bank (PSB) license would help in driving Fintech revenue (accounting for 3% of revenue in Q1 2019). We believe obtaining a PSB licence would enable the firm target between 40 to 60 million unbanked adult population in Nigeria.
At the current price of N131.7/s (EV/EBIDTA of 4.8x compared with 5.6x for its African peers), the telco giant remains undervalued when compared to its African peers, hence there is scope for expansion in valuation multiples. Within Africa, we believe MTNN deserves a premium valuation based on its dominant market position in Nigeria together with its strategic positioning to benefit from the growth prospects in the market given the population demographics, rising urbanisation, increasing usage of internet for communication alongside its footprints in the provision of digital and mobile financial services (MFS) services. That said, we expect pent up demand coupled with low supply (as current investors employ a wait and see approach) will continue to drive its share price higher in the coming days.
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