Even as the coronavirus pummels the Nigerian economy, a boom in data usage is set to lift MTN Nigeria and Airtel Africa two of the nation’s largest telecom carriers to the tune of $700 million (N272 billion).
MTN Nigeria (MTNN) saw a 59 percent surge in data revenues in the first three months of 2020, while Airtel Africa data revenues (for Nigerian operations) increased by 52 percent in the same period (January – March).
Since Nigerians began to stay at home since President Muhammadu Buhari ordered a lockdown at the end of March, we expect data revenues to surge by an average of 72 percent in fiscal 2020 for MTN Nigeria and 68 percent for Airtel Africa, according to MoneyCentral modelling.
This translates into extra data revenues of N158 billion for MTNN and N114.4 billion for Airtel Africa in 2020, compared to the 2019 levels.
Data revenue is growing in both firms amid an increase in smart phone penetration in the country and improved 4G penetration.
For instance, the MTN data boom meant that it added 1.6 million smartphones to its network in the first quarter of 2020.Shares of MTNN have largely languished in the past year (returning -8.18%), while Airtel Africa shares are down some 11 percent since last year’s dual Lagos/London listing.
Investor angst over regulatory risk for MTNN as well as a planned IPO scheduled for 2020, may be keeping the shares from rallying to fair value of around N150 per share.
For Airtel Africa, low liquidity and non-pure play exposure to fast growing Nigeria may be a concern for investors, as the firm is present in 14 African countries.
Foreign exchange (FX) risk and disparate tax mix across countries are also issues for Airtel.
For instance, the firm noted that: “The effective tax rate of 48.6 percent is higher than the weighted average statutory tax rate of approximately 32 percent, largely due to the profit mix between various countries.”
That being said both firms are buys in our opinion as they throw out huge free cash flow which is invaluable for reliable dividend payouts, as well as standing to benefit the most from an accelerated shift to a post Covid-19 world of virtual meetings and all things digital.
In the post COVID-19 era, Telco’s are expected to perform well as the world will be more connected and businesses better prepared for such calamities, according to GlobalData, a leading data and analytics company.
In the long-term the outlook remains positive, as reliable connectivity becomes a critical commodity. Emma Mohr-McClune Technology Service Director at GlobalData, says: “Coming out of COVID-19, millions of users worldwide will be more connected and more familiar with digital tools. Telco networks will have gained first-hand experience in dynamic network traffic management while businesses and their telco partners will have a better understanding of the challenges of homeworking.
The situation will provide a shot in the arm for telco innovation around AI and machine learning and a catalyst for app and solution innovation ecosystems.”