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Sunday, October 2, 2022

MTN Nigeria Has Highest Ebitda Margin Among African Peers

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MTN Nigeria has generated more profit from operations than African peers even amid a difficult environment as the company’s cost control measures continue to bolster margins.

MTN N’s Ebitda margin is 53.60 percent at June 2022, and that compares with South Africa’s Vodafoam Group, (38.80 percent); Kenya’s Safaricom’s (50 percent); Airtel Africa, (48.30 percent); South Africa’s MTN Group, (41.60 percent), and Senegal’s Sonatel, (44.20 percent).

The Ebitda margin, which is calculated as earnings before interest, tax, depreciation and amortization divided by total revenue, is a good indicator of a company’s financial health as it doesn’t consider the effect of unique decisions and tax laws when assessing the performance of a company.

The Nigerian telecoms giant has been implementing cost efficient strategies which are responsible for higher profit margins as rental costs remain major costs.

Of course, the firm has been increasing operating income by magnifying revenue, which is why it generates sales with a high gross margin and low variable costs and has high operating leverage.

Earnings before interest and taxation, and amortization (EBITA) rose 22.10 percent to N509.31 billion in June 2022 from N417.21 billion the previous year.

It has a strong cash flow to pay debt, reward shareholders in the form of dividend payment, and fund expansion plans across the country.

Free cash flow from operating activities stood at N184.19 billion as at June 2022, which is 17.60 percent higher than 2021’s N156.62 billion.

It is noteworthy that the MTN N to hedge against supply chain restriction and foreign exchange crisis as some manufacturers have stopped operations due to inability to source foreign exchange to import raw materials and the parallel market rates are inaccessible.

The company invested in the rollout of the 4G network, with 4G  coverage now at 75.3 percent compared to 67.2 percent in 2021, which is responsible for 77.9 percent of data  traffic.

In an aggressive expansion drive, MTN is on course to launch devices across Nigeria in the third quarter of the year, having acquired one lot of 100MHzin the 3.5GHzspectrum, according to analysts at Chapel Hill Denham in a note to client.

“We are cautiously optimistic that, as the only mobile telecom with a 5G licence, management will further widen the data revenue gap between MTNN and competitors from Q4-22 onward,” said

“Notably, half of MTNN’s subscribers have smartphones and works are underway to drive the acquisition of 5G-enabled smartphones by customers,” said the analysts.

As of half-year, the telecoms giant has incurred capital expenditure (CAPEX) of N325.13 billion, which is 24.80 percent higher than 2021’s N260.59 billion.

For full year 2022, analysts at Chapel Hill raise their capex forecast to N281.81 billion (+8.9% yoy) with an intensity of 14 percent as they expect capex growth to slow down in the third quarter of 2022.

Cheaper Valuation high ROE validates BUY ratings

It is not surprising that the company has one of the most attractive valuation among peer rivals across the globe while consistent earnings growth and high operating leverage elicits Buy ratings on stocks from investment houses who continue to wager on the stock.

Analysts at Chapel Hills have revised their 12-month target price of N304.66 (N313.46 previously).

In short, MTN has a price to earnings multiples of 12.25, which is lower than South Africa’s Vodacom Group’s (15.80); South Africa’s MTN Group, (17 percent), and Kenya SafariCom, (19.60).

The telecoms firm is generating from the equities it has issued as return on equity, which is the highest among firms in Nigeria, increased to 135.92 percent in June 2022 from 106.13 percent as at June 2021.

MTN Nigeria was recently granted final approval for a Payment Service Bank (PSB) by the Central Bank of Nigeria (CBN). This will enable the Telco to offer financial services in line with the CBN’s guidelines and support the government in fulfilling its agenda of driving financial inclusion in Nigeria.

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