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MTN Nigeria listed on the Nigerian Stock Exchange on the 16th of May 2019 immediately making it one of the hottest stock in the market. Retail investors queued up to purchase the stock at basically any price sending the market value per share to as high as N149 before it started ‘crashing’ back to earth.

Just last week, the company published its 2018 full year results revealing revenues of N1 trillion compared to revenue of N887 billion a year earlier. Profit after tax also rose from N81 billion in 2017 t0 N145.6 billion at the end of 2018. The numbers show just how incredibly profitable MTN is as a company and why investors place a high premium to it.

Despite the impressive results released, MTN share price closed flat on Friday at N136.6 down 8.3% from its current highs but still 51.1% up since it got listed on the 16th of May 2019. With the share price spike seemingly tapering out, some investors are wondering why and if this should be a source of concern for those seeking to buy the stock. Of course, no one wants to buy the stock at a price that’s higher than what they could sell it for in future.

Why the share price is “falling”? At its high of N149 MTN was effectively trading at a price-earnings multiple of 21x. This means investors were paying a price that is 21x what MTN is declaring as profits. This was a problem for some investors;

Before we delve into this let’s look at an important metric

  • Investors especially the institutional ones with billions of naira to invest in stocks typically rely on a metric known as Enterprise Value/Ebitda multiple to value stocks.
  • Ebitda is an acronym for Earnings Before Interest, Tax, Depreciation, and Adjustments. It is derived by adding back noncash expenses (expenses that do not require that you pay cash for but accrue for accounting reasons) to profits. You can read more on Ebitda here.
  • Ebita gives you how much cash a company is truly generating as a business and as cash is king, investors prefer to use this metric.
  • The Enterprise Value, on the other hand, is the total market value of a company plus its debt.
  • So, to get the multiple you divide the enterprise value of a company by the Ebita

MTN’s EV/Ebitda multiple consensuses: Most investment research reports we read suggest MTN’s EV/Ebitda multiple should be about 6-7x. This takes MTN’s share price fair price value to between N140 and N150 per share. Investors are therefore saying that anything above this price is overvalued. And since these institutional investors are the biggest buyers they mostly have a say in the direction a price can go.

But it is important to note that their assessment is based on MTN’s current reality which is the results it has just published. Things could change quite quickly if MTN continues to grow its profits and more importantly its Ebitda. The higher the Ebitda the more likelihood the share price could cross the target N150 price and perhaps inch towards N200 per share.

Other factors: There are other factors that might also explain why MTN’s share price spike has stalled.

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  • Some analysts also cite the fact that demand for the stock may have waned after frustrated investors who wanted to buy the stock used the money for something else.
  • In addition, the shares are now a lot more available to purchase following the backlash associated with the cross trading that took place in its first week of trading.
  • When supply and demand are close to each other the market typically hits a price equilibrium.
  • A recent investigation into MTN’s listing by the EFCC may also have eliminated any underhand tactics that may have been used by stockbrokers to manipulate MTN’s share price.

Smart Money: Several factors could well determine where next MTN’s share price might be headed to. It could defy analyst expectation and cross N150 or could even settle around N120 or below. What is important for any investor is determining if this is a company capable of growing its profits year after year and paying dividends. These two factors more than anything else determine the value of a listed company in Nigeria.

  • MTN’s recorded a profit decline over the last 5 years following the huge fines it had to pay. From a profit after tax of N209 billion in 2014, its profit is now N145 billion.
  • The fact that it nearly doubled its profit between 2017 and 2018 shows it is likely to continue growing.
  • It’s a behemoth of a company and holds a significant and growing share of the Nigerian market.
  • Though other GSM Companies are struggling under huge debts and thin margins, MTN Nigeria seems to be doing well.
  • Smart Money rules suggest you invest at a price that is lower than the intrinsic value of MTN (which analysts say is N145).
  • Any price below N120 is a huge buy sign as far as we are concerned.


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