Leading telecom giant, MTN Nigeria Communications (MTNN) released its Q1 22 unaudited results on Friday, 29 April. The group reported EPS of N3.62 (+31.5% y/y), a record high for a single quarter, following solid growth in service revenue and the positive impact of the group’s expense efficiency programme.
The achieved EPS, when annualised, is in line with our forecast for FY 22 but is 8.2% ahead of consensus forecasts owing to a positive surprise on the Expenses line.
The market reaction to the result was neutral; the stock has risen by 0.2% over the last two sessions.
Data drives revenue to quarterly high
Service revenue grew by double-digits for the sixth successive quarter, rising by 22.2% y/y in Q1 22. The growth was driven by data (+54.5% y/y) and voice (+4.7%) revenue. Growth in data, which contributed 34.7% (Q4 21: 33.5%) to revenue, was delivered through a combination of increased active data subscribers (Q1 net additions: +1.6 million), increased usage (average MB per user rose by 69.8%) and traffic (+84.8% y/y), all supported by increased network capacity and 4G penetration. Notably, 4G population coverage increased to 71.7%, up from 70.3% in Q4 21 and 61.8% in Q1 21.
Rising usage in MTNN’s active SIM base and increased gross connections supported voice revenue (+4.7% y/y) which accounted for 46.4% of total revenue in Q1 22. According to management, the primary drivers for this were the expanded customer acquisition touchpoints, rural telephony initiatives, and customer value management (CVM) initiatives implemented in the period. This helped mitigate the impact of restrictions on SIM registrations and activations.
Operational efficiency drives EBITDA margin expansion
During the quarter, total expenses grew by 18.3% y/y, owing to the continued effects of Naira depreciation on lease rental costs, and accelerated site rollout. However, according to management, the group expense efficiency programme led to the realisation of N6.3bn in cost savings. Consequently, EBITDA (+25.7% y/y) grew above revenue growth, with the EBITDA margin printing 54.6% (vs 53.1% in Q1 21 and 54.1% in Q4 21).
Five successive quarters of earnings growth
Net finance costs (+18.7% y/y) rose in Q1 22, following increased interest expense on borrowings. Overall, Q1 PBT grew 39.4% y/y, and PAT grew 31.3% y/y. Notably, the group’s PAT has grown by strong double-digits for five successive quarters. The effective tax for the quarter was 32.6%, compared with 28.4% in Q1 20 and 32.1% in Q4 21.
Conclusion
According to stock analysts at Cordros Capital, MTNN’s operational performance in Q1 22 was impressive and in line with our expectations. The upward trend in data revenues is proving to be sustainable, underpinned by increased population coverage and smartphone penetration. Notably, active data subscribers grew by 1.6m q/q, the largest growth since Q4 20; this implies over 50% of MTNN subscribers are active data users, compared with around 34% two years ago. Elsewhere, final approval for the Nigerian Payment Service Bank (PSB) license came in earlier than we expected. The start of the company’s PSB operations (from Q2 22, according to management) remains the key catalyst, in our view, as mobile money in Nigeria presents a compelling growth/return opportunity for MTNN. Accordingly, we maintain our BUY recommendation on the stock. On our estimates, the stock is trading on 2022F P/E and EV/EBITDA multiples of 11.4x and 5.1x, a discount to emerging market peer multiples of13.3x and 6.1x.
