Event

The strong fundamentals of MTN Nigeria Plc continued to reflect in FY 2022, with solid topline and bottomline performances. Revenue grew by 22% year-on-year to hit N2.01trn in FY 2022. This is a record on the Nigerian Exchange. As was the trend over the past four years, data revenue led the overall revenue growth. The data segment grew by 48% year-on-year to N763.94bn in FY 2022. We note that the size of data revenue was just N67.86bn in FY 2016. Therefore, the Group recorded a 50% compound annual growth rate (CAGR) in the data segment between FY 2016 to FY 2022, reflecting strong growth momentum and market fundamentals. From 9% in FY 2016, data revenue now accounts for 38% of the Group’s total revenue.

During the financial year, active data subscribers grew by 15% to 39.50mn users. In combination with a higher 4G population coverage to 79%, data traffic increased. Meanwhile, the 5G network was launched in Q3 2022 and a total of 588 sites were rolled out to provide coverage in key cities across the six geopolitical regions of Nigeria. We expect these investments to fully reflect in FY 2023.

Voice Revenue Maintains Trend

Revenue in the voice segment grew by 6% year-on-year to N815.61bn – in line with historical trend. Mobile subscribers grew by 11% to 75.60mn users in FY 2022 after an initial 10% decline in FY 2021 which was because of the bottlenecks associated with the NIN-SIM registration.  Evidently, the Group already moved past the setback and churn improved. In the near-to-medium term, we expect to see sustained revenue growth within historical trends in this segment.

Fintech Business Rejigs to Pick Up After a Temporary Slowdown

An intentional suspension of business activities of the MoMo PSB, in effort to strengthen internal controls and technology infrastructure, was done in Q3 2022. According to the management, the Group is in the final phase of the restructuring exercise, and it expects to finalise the processes in Q1 2023. Nonetheless, active fintech subscribers grew by 58% to 14.90mn users, with 2.00mn active mobile money wallets since the launch of PSB. Fintech revenue grew by 18% year-on-year to N81.38bn in FY 2022.

Operating Efficiency Builds Resilient Margins

EBITDA grew by 22% year-on-year to N1.07trn in FY 2022 – representing an EBITDA margin of 53% (FY 2021: 53%). This was despite a high-cost operating environment, characterised by inflationary pressures, energy disruptions, and currency depreciation.

Net Profit Growth Underpins Company Strong Prospects

Profit after tax grew by 20% year-on-year to N358.88bn, higher than the 12-month average inflation of 19% in 2022. By extension, return on assets (RoA) improved by 28 basis points to 14.42% in FY 2022 (FY 2021: 14.13%). Our estimates show that based on RoA, the Group ranks among the top 3 most profitable company on the Nigerian Exchange.

Outlook

We maintain a very strong positive outlook for the Group. We think that there are still significant opportunities for growth in the data segment. As we noted in previous reports, some of the data demand drivers in the near to medium term include (i) a rising and fast-growing digital economy (ii) increased smartphone penetration (ii) enhanced 4G coverage and increased penetration of 5G (iv) growth of the creator economy and social media influencing, and recently (v) cashless policy and significant growth in the PSB business.

We forecast a 19% revenue growth – thus, we see revenue printing N2.39trn in FY 2023. On the back of operating efficiency, we estimate a 100 basis points in net margin to 19% (FY 2022: 18%). Based on the Group’s dividend policy, we project an N19.18 dividend for FY 2023 – consisting of N6.89 interim dividend (FY 2022 interim dividend: N5.60) and N12.29 final dividend (FY 2022 final dividend: N10.00).

In view of our improved growth prospects and strong industry fundamentals that we expect to sustain over the medium term, we revised our fair value estimate (FVE) of the stock to N331.13 (previous: N290.36). Based on our FVE, the implied justified price-to-earnings multiple is 15.19x. Although the four-year historical P/E multiple average is 11.95x, we do not think that the historical average captures the future growth prospects of the Group, particularly with the expected benefits to accrue from the mobile payments space and the recent 5G investments. At the current market price, the stock’s expected total return is 42%. Hence, we maintain our BUY recommendation.

Please follow the link “MTN Nigeria Plc FY 2022 Earnings Update – Firing on All Cylinders” to view the whole report.

Thank you.