MTN a major investment opportunity – MyBroadband

MTN provides a compelling investment opportunity at its current valuation, given its position to benefit from increased economic growth across Africa, strong balance sheet, and plans to reduce its sensitivity to foreign exchange rates.

This is feedback from the head of research at Old Mutual Wealth Private Clients, Victor Mupunga, who said the company has come under pressure from several macroeconomic headwinds in recent years.

MTN released its results for the first half of 2024 last week, revealing growth in its South African operations but a major downturn in its Nigerian business.

The telecoms giant reported a 20.8% decline in group service revenue due to a 52.9% decline in revenue from Nigeria. Its South African operations grew service revenue by 3.3%.

The company’s EBITDA (earnings before interest, taxes, depreciation, and amortisation) in South Africa was up 4.3%, but a 68.3% decline in Nigeria saw group EBITDA fall by 41.2%.

MTN saw total subscriber growth of 0.8% to 288 million customers, with active data subscribers growing by 9.2% to 150.2 million.

The company’s headline earnings per share (HEPS) decreased by 198.5% to a loss of 256 cents per share.

Mupunga said these results were weak, considering MTN’s scale and dominant position in many African markets.

“Despite the weak reported numbers, a key takeaway from the results was the strong operational (constant currency) performance,” Mupunga said.

On a constant currency basis, EBITDA remained unchanged from the prior year, with a comparable EBITDA margin of 39.2%.

“Notwithstanding the current tough macro environment, the respectable operational performance gives us confidence that the group remains well-positioned to deliver solid returns once the macro headwinds abate.”

Some of the metrics that highlight MTN’s commercial momentum include the increase in the group’s active data subscribers (up 9% to 150 million) and fintech transaction volumes (up 17% to 9.7 billion).

The strong performance in Ghana and Uganda means these countries are increasingly significant profit contributors and will reduce the company’s reliance on earnings from Nigeria.

Mupunga expects Ghana to contribute more profit than Nigeria in 2024 and 2025, thanks in part to the country’s 20.4% increase in EBITDA.

Promising signs

During the period, MTN’s operations across the continent were able to remit R6.7 billion to the group.

This figure includes the previously delayed 2023 dividend from Nigeria, which speaks to early signs of stabilisation accessing foreign currency within the country.

Mupunga said that given MTN’s recent share price weakness, the company is trading below Old Mutual Wealth’s estimate of fair value.

The company is well-positioned to benefit from strong economic growth across the continent and capture value from the transition away from voice towards data.

MTN’s management team has also improved the strength of the company’s balance sheet over the past few years, proving its expertise in growing the business within an environment of changing regulations and evolving consumer preferences.

Mupunga also expects the company to benefit immensely from its growing fintech offering in key markets, with Nigeria providing a significant opportunity.

During this period, MTN received a licence to provide banking payment services, enabling it to offer fintech services in the country.

The management team has also significantly de-risked the business over the last few years, resulting in a more attractive business mix and geographic exposure.

“Given the benefits of scale within the telco industry, we believe MTN is well placed to either grow or defend its market share in key regions, where it already has leading positions.”

MTN South Africa’s improved network resiliency and the absence of load-shedding should make the company more competitive in the local market.

“Notwithstanding the current challenging macro backdrop, we regard MTN as being well-positioned to benefit from the continent’s increasing connectivity.”

“Operationally, the business had a respectable performance, which bodes well for when the macro headwinds stabilise.”

Furthermore, the group’s balance sheet remains well capitalised, with liquidity of approximately R30.4 billion.

Despite the current headwinds, Mupunga said Old Mutual Wealth’s investment case for MTN remains intact, with the share continuing to trade below its fair value estimate.

This article was first published by Daily Investor and is reproduced with permission.