Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.

Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.

Performance Overview: Airtel Africa 

Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.

Full Report here.

Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”

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Behind The Numbers – Nigeria

Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.

Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.

On cash flows…

The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.

“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”

To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.

(READ MORE: COVID-19: MTN says it has put strict measures in place to preserve resources)

Buying opportunity

Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.

It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.

If there is any network that has grown with its audience in Nigeria, it is MTN. With its most active users covering a demography of age 18 to 27, it is the network for the tech-age youth. From keeping them up all night with friends for Extra Cool calls to the nostalgic adverts, the network has had its fair share of growth – and signals show no sign of it slowing down.

Just like its brand, the company has strategically positioned itself and made expansionary decisions to get it to where it is – the second most capitalized stock in the NSE. MTN Nigeria’s (MTNN) Q1 2020 financials show that the company has it good and we’re not surprised.  

Its results reveal a great quarter for the telecommunications giant with a 16.7% gain in revenue, making ₦329.1 billion in the first quarter of this year in comparison to the ₦282.1 billion it made in the comparative quarter, Q1 2019. The telecommunication industry has naturally enjoyed a spike in usage since the last month of the quarter owing to the enforced lockdown, and its streak is still in motion.

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With a ₦51.1 billion profit for the period in comparison to Q1 2019 of ₦48.4 billion, it disclosed profits 5.9% higher than last year – even with increased finance costs of 25.3% percent revealing the capital-raising measures taken by the group to stimulate its operations. It was also in line with this that the company recorded a jump of 103.5% in interest expense on borrowings from ₦7.9 billion in Q1 2019 to ₦16.1 billion in Q1 2020. Total value also recorded a jump as there was a 35.3% growth in the group’s net asset from Q1 2019’s ₦145 billion to Q1 2020’s ₦196 billion. 

Its revenue figure is defined by a jump in voice calls of 6.14% from the ₦182.8 billion earned in Q1 2019, to its Q1 2020 ₦194 billion turnovers.  However, it is nothing compared to the 58.84% increase in revenue derived from local data usage (excluding roaming data) in the quarter from Q1 2019. Value-added service and digital services also witnessed a jump of 33.93% and 12.11% respectively. Having settled the $2 billion claim for back taxes it was plagued with last year that swayed investor confidence, it certainly came back strong this year. 

Naturally, the lockdown has contributed its fair share to the performance of the stock though most of this will reflect in its second-quarter results. With more people using their phones, we expected a spike in revenue governed by increased data usage. This trend is bound to be higher in the second quarter as more Nigerians choose to work from home relying on internet data to power their tasks. And for those without jobs, the internet serves as a perfect companion in both times of need and despair. 

READ MORE: MTN Nigeria: Accelerated growth in data revenue to buoy earnings despite soft macro conditions

The telecommunication industry itself is a growing one; Nigerian Communications Commission (NCC) reveals that as at Q4 2019, the telecoms industry contributed 10.60% to the GDP of the country and the total active telephone subscribers in Nigeria as at January stood at 185.7 million. With MTNN holding the largest market share of active telephone subscribers – 38% of GSM subscribers and 43% of internet subscribers, there is no doubting its growth trajectory.  

Covid-19 does posses some risk for the company, particularly in the Nigerian context. In times past, the government looks for who to prey when its revenues are faltering. MTN was once a prey and it paid a huge price for falling into the government’s trap. As the economy falters more eyes will focus on organisations that are posting monstrous profits. Taxes, penalties, donations should interest the government and MTN would be careful to protect investor interest while giving to Ceasar its due.

READ MORE: Surviving the looming recession in the Nigerian tech space

MTNN and the Market 

MTNN’s share price has had a turbulent 2020. The stock is up 6.6% YTD and fell to a year low of N90 in March. At a price-earnings ratio of 11.3x investors are bullish about its ability to continue to deliver impressive growth. MTN has had a nice ride since its listing about a year ago.  The first wave was observed within 48 hours of its being listed on the NSE for the first time in May 2019 when it was immediately ranked amongst the NSE top 5. It also didn’t take a couple of months before it shook the market by becoming the first on the NSE, temporarily surpassing Dangote Cement.

Having settled its tax disputes, its shares hit an all-time high of N159 per share before pulling back as investors worried about the faltering economy. MTN share price is still a bit off its 2020 high of 127  and could well be on its way there. 

The price closed at  ₦112 on Monday 11th May with a 52-week range of ₦90 and ₦159.3. 

Years of massive contraction from competing brands, loss on re-measurement of foreign currency, amongst others, threaten the existence of Guinness Nigeria as its Q3’20 YoY results show a 97.2% drop in profits for the quarter from its Q3’19 results

Decades of Nigerians having big stout as a choice companion for their Friday night hangouts or wedding parties might have given the Guinness brand a strong name in the local alcohol industry, but the latest results show that it has done very little to retain their loyalty. The covid-19 pandemic has, in the past few weeks, presented a good enough reason for many across the world to drown at the bottom of alcohol bottles.

Republic National Distributing Company (RNDC), a major $20-billion-revenue wine and spirits distribution company, revealed that sales of spirits jumped by around 50% in the third week of March 2020. In the US, weekly retail sales of alcoholic beverages took a jump to 55% in the week ending March 21st according to Neilsen market research. Unfortunately, the makers of names like Smirnoff, Ciroc, and Black Label amongst others cannot say the same for themselves as the company’s witty strategic actions did not translate to real numbers.

READ MORE: Why we experienced profit declines- Guinness Nigeria

The Results

Guinness Nigeria Plc in its just-released Q3 2020 results had a drop in revenue of 17.6% from ₦33.6 billion in Q3 2019 to ₦27.6 billion in Q3 2020, with inflows from export revenue plunging by 78.6% from a year earlier. Its profit after tax expectedly followed in a worrisome 97.2% drop from ₦1.7 billion in Q3 2019 to ₦46.4 million in Q3 2020. The company also reported growth in marketing and distribution expenses, an addition of 9.5% YoY in the period being reviewed, possibly reflecting its increased advertising efforts in the sector.

Needless to say, the additional expense did not translate to revenue growth in the quarter being reviewed. Finance cost also increased by over 495% from ₦280 million in its Q1 2019 results to ₦1.7 billion in the quarter just ended. The difference as a result of the loss on the re-measurement of foreign currency balances from its Dollar-denominated intercompany loan.

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The Reason and denial

Just early this year, the CEO of the company Baker Magunda reeled out a number of causative factors affecting its results.

“The profit margin has reduced significantly. The overall pricing on alcohol has declined over the last four years. The inflationary trend has moved from 11% to 12%. There has been an increase in tariffs. There is congestion at the ports, it costs the company over N700,000 to transport a container from the Apapa port to our factory at Ogba in Ikeja area of Lagos,” he added. 

Mr. Magunda may have some points but he missed out on the key issue. Younger Nigerians don’t just drink Guinness Stout anymore and the tens of millions spent on advertising the brand are also not yielding the desired results. There is a general apathy towards beer-drinking as can be seen from the results of other beer makers. So what should Guinness do?

Reinvent the brand and marketing techniques. For some reason, the Guinness Milk brand is yet to be introduced into the Nigerian Market. To capture a younger generation with acquired taste in spirits and sweet mixers, it needs a beer that’s compatible with taste buds. It also needs to invest in celebrities who actually drink Guinness Stout and not just flash it on the screen like their followers cannot discern.

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Share Price

The markets also reflect the company’s troubled waters. Now at the bottom of its industry, its share price stood at ₦17.50 when markets closed on the 5th of May 2020. With a 52-week range of ₦17.50 and ₦52, its current share price is at an all-time low. Unfortunately, it is still slightly trading at a premium when you consider the negative headwinds.

The third quarter is usually one of Guinness’s better quarters. Last year it reported an EPS of 76 kobo compared to just 2 kobo this quarter. This year, we project earnings per share could fall to as low as N1 per share. On today’s all-time low price of N17.50, that’s a 17.5x price-earnings ratio.

Guinness’s current price-earnings ratio of 14.79x is already higher than the broader index. There are certainly cheaper stocks out there with better fundamentals. With its low price to book ratio, if investors believed there was a possibility for a rebound, the low P/B will have suggested that an opportunity existed. But it’s basically carrying legacy assets it can’t seem to sweat and for investors they rightly discount it. Guinness needs to return value to its shareholders.

READ ALSO: Faltering Guinness pays bumper dividends but Diageo rakes in billions in royalties

A logical method to value Guinness will have to be via its dividends yield. Guinness has rewarded its shareholders with dividends consistently for years. Last year it paid out 73% of its profits as dividends achieving a dividend per share of N1.8 (N0.6 prior year).

Using today’s price its dividend yield is about 8% and will present unique values if prices trend lower to deliver a yield of 12%. Guinness has a robust retained earning and can fund further dividend payouts. Last year it paid out just N4 billion and has paid out N20.5 billion in dividends in the last 5 years.

Perhaps at that price, Guinness can start to appear tasty again.