MTN Nigeria share price fail to ‘take-off’ despite record N2 trillion revenue

Investors appear to have shunned MTN’s impressive N2 trillion revenue recorded in the financial year that ended in December 2022.

MTN Nigeria Communication Plc on Wednesday, February 1, 2023, released its audited results for the 2022 FY ended December 31, 2022, reporting a 21.64% year-on-year revenue growth in 2022FY.  

The company also reported a profit after tax of N358.777 billion in 2022 FY from N298.654 billion a year ago, representing a 20.16% year-on-year growth and earnings per share of N17.79 from N14.67 reported a year ago. 

Despite this, the share price which closed at N230.9 on the day the result was announced has remained flat since then gaining only N10 per share or 3.8%.

The share price was expected to rise on the back of an impressive performance, especially the company’s ability to keep growing profits amidst its highly lucrative business mix.

How good was MTN’s result?

A cursory review of the results shows that the 2022 FY earnings growth was on the back of a 21.64% year-on-year growth in revenue to N2.012 trillion on account of 48.02% growth in data generating-revenue segment to N763.938 billion in 2022 FY from N516,098 in 2021 FY

• Also, the growth in mobile/active fintech subscribers and active data users contributed to the reported revenue growth. Mobile subscribers for instance increased by 10.5% to 75.6 million; additional 7.2 million subscribers in 2022. 
• The operating profit and margin improved due to efficiency and cost control growing by 25% year-on-year to N733.298 million, which increased the operating profit margin to 36%. 
• Overall, Telco also continued to maintain a strong market share as its Consumer Business Unit, which includes the mass segments, contributed about 86% to the group’s revenue. 
• The company also paid an additional dividend of N10 per share taking its total dividends to N15.6 per share.

Earning miss?

Investors also assign higher valuation multiples when companies beat their earnings forecast. MTN reported an EPS of N17.79 for 2022 FY vis-à-vis analysts’ earnings projections indicating ‘missed’ earnings.

• For example,  Bloomberg had projected an EPS of N18.41 by 12/2022. Nairametrics, three weeks ago, had projected earnings per share of N20.23, which at multiples of 12.5x could have seen the share price at N252.83 per share.
• Despite the earnings miss, the company’s performance reflects the strong competitive advantage MTN has as a behemoth.
• The company’s ability to continue to grow revenues across its key business segments is the more reason why it remains one of the most valuable stocks in the market.

Valuation

However, investors appear to have priced in its current and future value in its current valuation. At a current share price of N237.9, the stock is trading at 13.49x its earnings per share.

• A more appropriate valuation measure is a price to earning growth that adjusts for the company’s current growth.
• MTN’s earnings per share of N17.79 is 21% higher than the N14.67 reported in the comparative year of 2021 suggesting it grew faster than investors’ expectations.
• In addition, the company’s annualized earnings growth over the last 5  years is a remarkable 26%. This suggests it might continue to grow earnings at over 20% every year.

MTN Nigeria’s share price has recorded a rise of 4.65% this year which is far below impressive. To achieve a 30% return, the share price will need to rise to around N309 per share. Is this possible?

• Investors ascribe a 13-15x multiple on MTN’s earnings which means for a N309 price per share target, the projected earnings per share for 2023 will have to rise to about N21.
• Going by its ability to grow earnings per share by at least 20% annually, that target is within sights.