MTN Nigeria 2019FY: Performance in line with expectations; strong growth continues

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By Cordros Research

Event: MTN Nigeria Communications Plc (MTNN) released its Q4-19 and 2019FY audited results after close of market last Friday (28 February 2020), in which the company reported an EPS growth of 75.5% in Q4, underpinned by accelerating topline growth and lower operating costs. For 2019FY, revenue grew by 12.6% y/y (third consecutive year of double-digit growth) and was 5.4% ahead of Cordros’ estimates. However, the achieved EPS was in line with our expectations (2.3% variance). On the 2019FY EPS of NGN9.93 (+38.7% vs. 2018FY), the board has proposed a final dividend of NGN4.97/s, in line with our estimate, and which equates to a yield of 4.5% on Friday’s closing price (NGN110.00/s).
Service revenue accelerated from +11.9% y/y in Q3-19 to +14.1% y/y in Q4-19, driven by growth in data (+79.0% y/y) revenues. According to management, active data subscriber net additions settled at 2.9 million in Q4-19, with 4G population coverage rising by 8.4ppt to 43.8%, with an additional 68 cities being given access to 4G. Data revenue contributed 18.2% to total revenue (vs 11.6% in Q4-18). Sequentially, service revenue grew +8.2% q/q, underpinned by digital revenue (including value-added services). Digital revenue grew +17.7% q/q, as MTNN launched MusicTime, a time-based music streaming service. Noteworthy is that the active base for digital subscriptions surpassed 2.1 million users during the year.

In Q4-19, total expenses grew by only +3.5% y/y, below the rate of inflation, reflecting progress with management initiatives towards the reduction of non-recurring expenses. As a result, on an IFRS 16 basis, EBITDA (+63.6% y/y) grew in excess of revenue growth, with EBITDA margin printing 54.2% (highest since Q2-19).

Net finance costs (+201.2% y/y) surged in Q4-19, following a +136.2% growth in finance costs – total debt grew +135.3% y/y to NGN412.52 billion (+429.9% y/y to NGN929.08 billion including lease liabilities) as the company took an additional NGN200.00 billion local currency term loan syndicated by local banks in May 2019. Finance income (-42.1% y/y) also declined amidst the lower yield environment in Q4-19.

Overall, Q4 PBT and PAT grew +55.2% y/y and +75.5% y/y respectively. Effective tax for the quarter was 31.1%, compared to 29.6% in Q3-19 and 39.1% in Q4-18.

Management call on Tuesday 3rd March 2020 at 3.00pm Nigerian time. Nigeria dial in +23419030040; UK dial in +443333001417.

Comment: MTNNs operational performance in 2019 was in line with expectations. PSB remains the key catalyst as mobile money in Nigeria presents a compelling growth/return opportunity for MTNN, in our view. We look for the company to provide an update on the Nigerian PSB license on the conference call. MTNN’s share price is up 4.76% YTD and on our estimates, the stock is trading on 2020E P/E and EV/EBITDA of 10.1x and 3.9x, a discount to emerging market peers 14.5x and 5.8x, respectively. Our estimates are under review.

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