MTN Nigeria: Accelerated growth in data revenue to buoy earnings

• As analysts project 50% growth in data revenue to N329.1bn
• Recommend stock for investors

By Omobayo Azeez

Analysts at the CSL Limited have estimated that despite soft macro conditions, MTN Nigeria is positioned to witness accelerated revenue in 2020 supported by increase in data purchase by its subscribers.

According to them, MTN Nigeria, the second most capitalized listed security at the Nigerian Stock Exchange (NSE) may also record an increase by 50 per cent in data revenue to hit N329 billion in 2020.

Recall that the telecoms giant reported double-digit growth in revenue, up 13 per cent to N1.2 trillion in  2019, on the back of growth in voice and data revenues which expanded by 8 per cent and 42 per cent year-on-year in 2019.

This projection is anchored on the outbreak of COVID-19 which has disrupted activities, leading to shutdown of offices, factories, schools and social gatherings will result in increased data and voice consumption in the short term as people increasingly communicate remotely and seek entertainment during the lockdown

“Thus, we expect MTN’s earnings to receive a significant boost. Post COVID-19, we think favorable demographics, rising smartphone penetration along with increasing internet penetration which stood at 38.47 per cent as at January, 2020 compared with 32.34 per cent in January, 2019, and continued investment by the company in deepening 4G coverage are positive catalyst for earnings growth.

“We have revised our estimates over our forecast years (2020-2024). The overall impact is a marginal increase in our price target to N187.4 per share from N184.2 per share previously, hence we retain our buy recommendation.

“Our revised target price implies an upside potential of 97.3 per cent from the last closing price of N95 per share. MTN is currently trading at a FY2020e P/E and EV/EBITDA of 6.7x and 2.8x respectively, a discount to EM peers average of 13.9x and 4.7x respectively,” the analysts stated.

They further noted that although, the share of voice revenue declined to 73 per cent in 2019 from 75 per cent in FY 2018, the development reflects the growing shift to a data-centric model, driven by the increased use of social media platforms among the populace in communicating.

 Looking ahead, analysts hold that the rising use of social networking sites particularly WhatsApp for communication will continue to reduce voice traffic with its attendant impact on voice revenue.

“Additionally, we expect industry players to cut voice prices in a desperate attempt to lure subscribers to make use of conventional airtime for calls.

“Overall, we estimate voice revenue will grow by 5 per cent to N889.9bn in 2020, which is slightly lower than the growth of 8 per cent in 2019. We also estimate the contribution of voice revenue to overall revenue will moderate to 67 per cent in 2020 from 73 per cent in 2019,” they said in report on Friday.

This implies that the MTN Nigeria’s stock holds good potential to yield returns for shareholders as its core operations seem to enjoy insulation from economic headwinds and volatility in the capital market.