Analysts mark MTN, Airtel Africa as defensive stocks
By Omobayo Azeez
Stocks of telecommunications companies at the Nigerian Stock Exchange, particularly MTN Nigeria and Airtel Africa have been identified as defensive stock, capable of shielding investors from the turbulence of the market.
The analysts at CSL Stockbrokers Limited also described the telecoms sectors a bright spot amidst glooms.
A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market.
This may not be far from the fact that telecoms services, unlike many other industries that have been forced to shut down operations by the reality of Coronavirus in the country, the sector has recorded surge in patronage, which automatically means increase in operators’ revenue.
For instance, Muhammed Rudman, chief executive officer, Internet Exchange Point of Nigeria (IXPN), said a surge in Internet traffic was noticed on Tuesday when the lockdown took effect in selected states, adding that Internet traffic has increased by 10 per cent in the past one week.
Analysts at CSL said that “considering the COVID-19 pandemic ravaging the country which has led to movement restrictions in various states and with key population centres like Lagos and Abuja seeing its citizens forced to stay at home, we expect a surge in data usage among the populace.
“We consequently expect better numbers from the telecom companies in the months ahead. In light of this, we see key telecom stocks like MTNN and Airtel Africa as good defensive stocks in this pandemic.”
They cited recent data on key industry fundamentals published by the Nigerian Communications Commission (NCC) which showed that the total number of broadband subscriptions grew 1.8 per cent month-on-month and 19 per cent year-on-year to 73.5 million.
Furthermore, broadband penetration expanded to 38.49 per cent in January 2020 from 37.80 per cent in December 2019 and 32.34 per cent in Jan 2019.
In a related development, the Nigerian Bureau of Statistics (NBS) published data on active voice subscriptions within the country for Q4 2019 which showed a sturdy 6.9 per cent y/y increase to 184.7 million subscriptions from 172.8 million subscriptions in Q4 2018.
“We note that Nigeria’s key telecommunications companies have invested heavily in internet infrastructure in a bid to improve 4GLTE coverage across the country.
“Furthermore, increased competition among the providers has forced bundle prices lower, making internet usage very attractive to the average Nigerian,” they explained.
According to the analysts, increasing smartphone penetration, increasing digitisation of the Nigerian economy and a fledgeling social media culture are some among many factors driving internet penetration within the country.
“Nevertheless, we believe the sector still requires more investment to bring it at par with what obtains in more developed climes. With internet penetration still at 38.49 per cent, we think significant potential exists for telecom and internet service providers in Nigeria.”
Based on these calculations, CSL stockbrokers indicated that even as market may remain volatile, the operations of the quoted telcos are insulated from the mood in the stock market.