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MTN, Airtel’s Shares more Attractive than Frontier/Emerging Market Peers

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Shareholders of the two telecommunications firms in Africa’s largest economy MTN Nigeria and Airtel Africa have been rewarded for being resilient through the covid-19 recession as there is a strong potential for their shares to appreciate over next 12 months.

At an industry price to earnings ratio of 14.5x and an Enterprise Value EV/EBITDA of 5.8x, the Nigerian telecoms sector is relatively attractive compared with global peers across emerging market (23.30x and 7.7x) and frontier market (16.5x and 7.7x), according to data from Afrinvest Securities.

The expected share appreciation is predicated on the resilience of MTN Nigeria and Airtel Africa despite a challenging operating environment as they are positioned to unlock opportunities in areas of financial inclusion and the rising demand for connectivity.

According to analysts at Afrinvest Securities, Airtel Africa is positioned to take advantage of the demographic growth within its 14 countries of operation given its acquisition and renewal of spectrum license.

To enhance both mobile connectivity, and financial inclusion across countries of operations, Airtel Africa got a $500 million loan facility to invest in network expansion and distribution.

Interestingly, the telecoms sector has been a major driver of economic recovery over the past one year, helping the country exit its second recession in five years.

The sector powered the economy during the pandemic as it grew by 15.10 percent accounting for 12.10 percent of GDP in 2020, however, growth slowed down to 7.69 percent in the first quarter of 2021 due partly to the ban on the sale of new sim cards.

The telecoms operators continue to leverage on the country’s huge and young population that crave for consumption.

Despite the ban on new sim registration and the adverse effect of the foreign exchange crisis on operating expenses, analysts at Afrinvest Securities expect industry revenue to grow by 11.50 percent to N3.20 trillion.

They expect the improvement at the top line to be underpinned by subscriber base and average revenue per user (ARPU), and mobile money.

“Nonetheless, in the near term, we expect revenue to be supported by the progress in National Identification Number (NIN) enrolment which today has 54 million people registered. Also, the resumption of sale of sim cards will boost subscriber growth, thus propping up revenue,” said the analysts.

For the year ended 31 March 2021, Airtel Africa’s underlying revenue increased by 14.20 percent (reported currency) to $3.90 billion from $3.42 billion the previous year.

Its operating profit was up 24.20 percent to $1.119 billion from $901 million the previous year. EBITD margins increased by 214 basis points to 28.46 percent as at March 2021, which means the company is making profit from core operations.

MTN Nigeria, the largest telecom operator in Nigeria with a total GSM subscriber base of 75.9 million as at March 2021, ranks as the largest subsidiary within the MTN Group by revenue and EBITDA with a share of 34.40 percent and 39.20 percent in 2020, higher than South Africa at 22.10 percent and 23.60 percent respectively.

MTN Nigeria’s first quarter revenue increased by 17.06 percent to N385.31 billion from N329.17 billion the previous year. Operating profit was up 20.38 percent to N133.10 billion in the period under review from N110.57 billion as at March 2020.

Net income spiked by 42.52 percent to N73.74 billion in the period under review from N51.74 billion as at March 2020.

It is increasingly turning each Naira of sales into net margins which rose to 19.13 percent in the period under review as against 15.71 percent the previous year.

Analysts have unanimously agreed that the telecoms operators will benefit the most from rising population and improved consumer spending as the rollout of vaccines and relaxation of lockdown measures are expected to lead to economic recovery.

Interestingly, mobile hotspots are used for many transactions, and a lot of people prefer it to internet modems; it is worth noting that students use hotspots for connections to do research while pupils utilize it to do their homework.

Nigeria has a population of 200 million people and the World Bank expects it to grow to 400 million by 2050, which will make it the third most populated country in the world.

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