MTN Nigeria is well-positioned to benefit from the structural upsides in Nigeria’s fast-growing telecommunication sector given its market leadership position (market share of 37.7%), growing 4G coverage, rising footprints in the rural areas through its MOMO agents. Accordingly, the company delivered impressive earnings in 2021FY, reporting earnings-after-tax growth of 45.5% y/y to NGN298.65 billion which translated to an EPS of NGN14.67 (2020FY: NGN10.08). The double-digit growth in PAT was driven by a combination of topline growth (+22.9% y/y) and stronger EBITDA margin (+209 bps), both of which offset the increases in network operating cost (+25.9% y/y) and net finance cost (+15.8% y/y). In 2022E, we expect earnings to be propelled by the growth in voice, data and fintech revenues, as well as improved operational efficiency. Our revised target price of NGN248.18 provides an upside of 25.3% based on the price of NGN198.00/share (February 11).
Growth in Subscriber Base, Data Usage and Fintech to Support Service Revenue: Service revenue grew by 22.9% y/y in 2021FY, due to the broad-based expansion across voice (+9.9% y/y; 59.8% of revenue), data (+55.3%y/y; 31.2% of revenue), and value-added services (+51.9% y/y; 4.3% of revenue). We highlight that the growth in voice revenue comes despite the decline in subscriber base (-10.5% y/y to 68.5 million in 2021FY). Management disclosed that regulatory restrictions on new SIM sales and activations led to the decline in subscriber base.
However, efforts to reverse the trend yielded results in Q4-21, as MTNN added approximately 1 million subscribers following the alignment of its SIM registration and activation centres with regulatory guidelines. We expect continued improvement in subscribers’ acquisition and forecast growth of 4.4% y/y to 71.49 million customers in 2022E. The key risk to our forecast is the National Identification Number (NIN) registration deadline of March 31, 2022.
Overall, we estimate Service revenue will grow by 17.5% y/y in 2022E, supported by growth in voice (+11.6% y/y), data (+26.5%y/y) and fintech (+23.0% y/y) revenues.
Cordros Capital says Data Revenue will remain a Key Driver of Service Revenue: MTNN sustained the robust expansion in data revenue, as it grew by 55.3% y/y to NGN516.21 billion in 2021FY. Management noted that the growth was driven by increased data usage from its existing base, expanded 4G coverage, and improved network capacity to support increasing data traffic. Notably, the average MB per user rose by 62.7% y/y, enabling overall data traffic growth of 85.3% y/y in 2021FY. Smartphone penetration grew by 4.0 ppts to 50.0%, while 4G penetration rose to 70.3% in 2021FY from 60.1% in 2020FY. We also like the improvement in data revenue share to 31.2% in 2021FY (vs 24.7% in 2020FY and 18.8% in 2019FY). Data revenue has expanded tremendously from NGN67.8 billion in 2016FY to NGN516.21 billion in 2021FY, implying a 5-year CAGR of 50.1%. It is pertinent to note that MTNN acquired and activated an additional 800MHz spectrum in Q1-21. Furthermore, the company was awarded the bid (at an auction held in December 2021) to acquire a 100MHz spectrum licence in the 3.5GHz band to roll out 5G services. Management expressed optimism that 5G will provide the foundation upon which future network performance will be built.
Analysts at Cordros Capital believe this will give the company a competitive advantage over its peers, given that it is the only mobile network operator (MNO) to be awarded a 5G license. In addition, we believe the country favourable demographics underpinned by the large population (estimated at c. 200 million) with a median age of 19, rising adoption of social media platforms for communication and digital marketing, and increasing internet penetration are key drivers of data revenue. Accordingly, we estimate data revenue will grow by 26.5% in 2022E. Further out, we project data revenue will grow by an average of 25.7% over 2022E-2026E, while the data revenue share will rise to 43.2% in 2026E from 33.6% in 2022E.
Revenue Growth to Sustain Expansion in Margins Despite Elevated OPEX: Despite the faster increase in network operating costs (+25.9% y/y) compared to revenue (+22.9% y/y), EBITDA grew by 27.9% y/y to NGN877.07 billion in 2021FY. MTNN sustained its operational efficiencies as OPEX/revenue improved to 23.4% in 2021FY (2020FY: 26.0%).
