In this report, Cordros Research, a leading capital market monitoring group has reviewed its estimates on MTNN for 2023E.
According to the group, so far in the year, MTNN has maintained resilience, as evidenced in its H1-23 results (see our First Glance report here) despite the effects of Nigeria’s FX market liberalisation, which triggered FX losses and deteriorated the company’s bottom line. We reduce our TP by 8.4% to NGN296.72/s (previously: NGN323.84/s) and maintain our “HOLD” rating. The downward revision to our TP reflects heightened cost pressures from the newly implemented VAT charge on tower leases and the possible effects of the higher FX rate on tower costs in H2. Nonetheless, we still expect MTNN to sustain the growth trajectory across its value channels, given the company’s continuous ramp-up of gross connections and capacity roll-outs. Cordros estimate a total DPS of NGN14.47 in 2023E, translating to a dividend yield of 5.2%. On our estimates, MTNN is trading on a 2023E P/E of 16.9x and EV/EBITDA of 5.4x.
Sustained topline growth; bottom line deterioration: We expect voice revenue to remain the biggest contributor to revenue growth (2023E: 42.3% | 2022FY: 43.0%), with most of the support coming from an expected increase in voice subscribers amid resilient usage of its voice propositions. Pertinently, we estimate a +5.0% y/y increase in MTNN’s subscriber base to 79.30 million by year-end 2023 (2022FY: 75.60 million) – translating to a 2.9% increase from the current level as of June 2023 (77.10 million). On data, MTNN’s investments in capacity to accelerate 4G and 5G network coverage will remain the key factor driving the value from this segment. Furthermore, we believe MTNN’s intentions to repurpose existing voice spectrums to cover for the increasing demand for data will be value accretive to data revenue growth. Overall, we project revenue growth of 29.9% y/y for 2023E and model an average growth of 12.8% in 2024-2027E. We project a 732bps y/y decrease in MTNN’s 2023E EBITDA margin, reflecting heightened cost pressures. Consequently, we forecast that MTNN EPS will decline to NGN16.27 (2022FY: NGN17.63), highlighting the one-off impact of the steep FX depreciation in H1-23.
EBITDA margin falls short of KPI guidance: Our model suggests that MTNN remains poised to achieve its medium-term guidance across most of its key performance indicators (KPIs) – revenue growth (at least 20%), capex intensity (<18%) and dividend payout (≥80%), save for EBITDA margin (53-55%) in 2023E. To provide clarity, we expect a depletion in EBITDA margin to 45.9% in 2023E, stemming from the increased pressures on tower costs. This translates to a c.700bps y/y dip from the set target of 53.0% – 55.0%. We believe the decline will be materially driven by the impact of the FX depreciation on tower costs, as earlier noted. However, going into 2024E, we forecast a rebound to 50.3%, with gradual yearly increases expected through 2027E.
Valuation: Cordros Research year-end target price is NGN296.72/s, derived from a 60/40 blend of DCF and sector relative valuation estimates. Our DCF FV is NGN312.31/s derived from an equal blend of FCFF (NGN276.03) and FCFE (NGN348.59) estimates, assuming a 16.0% WACC and 4.0% terminal growth rate. Similarly, our multiple-based FV of NGN273.34/s was derived from an equal blend of P/E (NGN249.70) and EV/EBITDA (NGN296.97) multiples, utilising Bloomberg’s Middle East and African peer averages for both factors (15.4x and 5.8x, respectively) as multipliers.
