MON, 01 AUG, 2022-theGBJournal| MTN Nigeria Communications (MTNN) released its H1 22 unaudited results after the close of trading on Friday (29 July). The group reported Q2 22 EPS of N4.16 (+24.2% y/y), culminating in H1 22 EPS of N8.92 (+28.0%).
An interim dividend of N5.60/s (+23.1% y/y) was proposed (below our estimate), implying an interim dividend yield of 2.8% on the last closing price.
The achieved EPS, when annualised, is in line with consensus forecast for FY 22 but by 4.9%, owing to a negative surprise on the Net interest line.
Although earnings were in line with the market’s expectation, we expect investor reaction to be buoyed by the increased dividend. Year-to-date, the stock is up 1.6%.
Service revenue grew by double-digits for the eighth successive quarter in Q2 22. However, like AIRTELAFRI’s (SELL, TP: N1,051.07) performance last quarter, the pace of growth slowed to 18.0% y/y, a five-quarter low.
Sequentially, revenue grew by just 1.7% q/q, the least since the start of the pandemic (Q2 20: -6.2% q/q). The revenue weakness was due to the restriction of outgoing calls for c.19m subscribers (when initially implemented) at the start of April, in line with the regulators directive. As a result, voice revenue (-2.9% y/y) declined for the first time since Q2-20.
Nonetheless, overall growth was driven by mainly data revenue (+50.6% y/y). Growth in data, which contributed 38.6% (Q2 21: 30.3%) to revenue, was delivered through a combination of increased active data subscribers (Q2 net additions: +0.9 million), increased usage (average MB per user rose by 61.8%) and traffic (+79.3% y/y), all supported by increased network capacity and 4G penetration. Notably, 4G population coverage increased to 77.9%, up from 71.7% in Q1 22.
During the quarter, total expenses grew by 17.6% y/y, owing to the continued effects of Naira depreciation on lease rental costs, accelerated site rollout, and rising energy costs. We also note that the surge in Maintenance costs (+26.4% y/y) and the new Information technology development levy (N1.31bn) contributed substantially to cost growth. According to management, the escalation of diesel prices in Nigeria contributed to the 10.1% increase in direct network operating costs with a 0.3ppt EBITDA margin impact.
However, due to the larger growth in Revenue, EBITDA (+18.6% y/y) grew, with the EBITDA margin printing 52.6% (vs 52.4% in Q2 21 and 54.6% in Q1 22).
Net finance costs (+68.4% y/y) rose in Q2 22, following increased interest expense on borrowings – the group raised N127.0bn through a commercial paper issuance in April 2022. Overall, Q2 PBT grew 11.5% y/y, and PAT grew 24.6% y/y. Notably, the group’s PAT has grown by strong double-digits for seven successive quarters. The effective tax for the quarter was 32.2%, compared with 39.3% in Q2 21 and 32.6% in Q1 22.
Despite the revenue weakness, MTNN’s operational performance in Q2 22 was in line with our expectations. According to management, there has been a steady recovery in voice revenue since April 2022 as more customers were reactivated following NIN verification.
‘’We expect a pickup in revenue growth in Q3 22,’’ says analysts at Coronation Research.
Management expects EBITDA margin for FY22 to be slightly lower than the medium-term target 53%-55% (Coronation Research forecast: 53.2% in FY 22) due to the impact of the NIN-SIM linkage directive and a more aggressive rollout on the Payment Service Bank (PSB) than originally planned.
‘’Nevertheless, we maintain our BUY recommendation on the stock. On our estimates, the stock is trading on 2022F P/E and EV/EBITDA multiples of 10.7x and 4.8x, a discount to emerging market peer multiples of13.3x and 6.1x,’’ Coronation said.
Stock Rating: BUY
Price Target: N274.41
Price (29-Jul-2022): N200.10
Potential Upside / Downside: +37.1%
Tickers: MTNN NL / MTNN.LG
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