MTN Nigeria’s FY 2019 AUDITED numbers showed double-digit growth in Revenue, up 13% y/y to N1.16 trillion, slightly above our FY 2019 estimate of N1.14 trillion. The growth in Revenue was on the back of growth in voice (up 8% y/y) and data revenue (up 42%y/y).
Management noted that the growth in voice Revenue was supported by an increase in subscriber base (up 10.5% y/y to 64.3 million) and voice traffic (up 7.6% y/y).
Data Revenue growth, on the other hand, was buoyed by growth in data subscribers (up 34.9% y/y to 25.2 million), greater data traffic (up 85.8% y/y) and improved 4G coverage following the activation of 800MHz spectrum in Q2 2019.
The telco giant also added 5.3 million smartphones to its network, which increased smartphone penetration to 41.8%. According to management, the firm ended the year with 132 cities in the country covered by 4G and 4G coverage at 43.8%. We believe the improved share of Data Revenue (19% in FY 2019 vs.15% in FY 2018) reflects the efforts of management in improving customer experience and optimising data Revenue.
MTN Nigeria reported EBIDTA growth of 46% y/y and EBITDA margin of 53.8% under IFRS 16, which is the new reporting standard the group has adopted. However, on an IAS 17 basis (the old reporting standard), EBITDA margin grew 3.0ppts y/y to 44.8% (FY 2018; 41.8%), driven by the growth in Revenue and sub-inflationary growth in Operating Expenses (+4.4% y/y based on IAS 17).
We regard the sub inflationary growth in OPEX positively, reflecting efficiency in cost management. EBITDA (based on IAS 17) grew 20.9% y/y to N524.4bn in FY 2019 from N433.9bn in FY 2018.
Net Finance Cost, however, grew by 1.35x to N48.6 billion owing to rise in Finance Cost (+73% y/y to N125.3 billion) amidst a marginal decline in Finance Income (down 4% y/y to N20.1 billion). The surge in Finance Cost was largely due to a first-time Interest Expense of N68.1bn incurred on Leases in FY 2019.
We note that this was due to the adoption of IFRS 16 which requires the classification of Interest Expense on leases as part of Finance Cost. Meanwhile, the mild decline in Finance Income was due to lower Interest Income on bank deposits and investment securities, reflecting the impact of the lower yield environment.
Notwithstanding, Pre-tax Profit grew 31% y/y to N290.1 billion in FY 2019 (CSL estimate; N288.2 billion). A lower effective tax of 30% in FY 2019 compared to 34% in FY 2018 supported the higher growth in Profit after tax (up 39% to N202.1 billion in FY 2019). Consequently, EPS grew 39% y/y to N9.94 in FY 2019 from N7.13 in FY 2018.
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The company’s management declared a final dividend of N4.97, bringing total dividend declared in 2019 to N7.92. Based on the closing price of N110/s on Friday, the final dividend translates to a dividend yield of 4.5%.
We have a target price of N184.2 on MTN with a BUY recommendation.
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