Why you Should Buy MTN Stock Now, Even if it’s Just 10 Shares

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Ten shares of MTN Nigeria (MTNN), is worth about N2,130 today as MTNN trades at around N213 per share. If that is all anyone reading this can afford we suggest they make the plunge and buy just (10) stocks of MTNN.

Of course most people have much more than that to spend but just don’t realise it. The money spent going out with the boys to the bars every weekend, the expensive watch or cologne you splurge on, for the ladies, the shoes, hair, or another handbag that you could probably do without.

Why do we at MoneyCentral urge people young and old to buy MTN stock? Because we believe that owning a piece of MTNN, will help them get excited about stocks and the long term wealth creation it brings.

So when next our readers want to purchase a N50,000 bottle of cologne or lace wig, they envision 234 shares of MTNN instead and we trust that over time the utility/excitement they get by owning the MTNN shares (through getting regular dividend payments/capital gains) will surpass the alternative forgone by not buying the cologne or wig.

Why we are so bullish on MTN Nigeria

UNIQUE

MTN Nigeria is an extremely unique company, with little or no firm quite like it in Nigeria. It is a technology, payments, Telco, and financial services firm all wrapped in one company and has been operating in the country for close to 20 years.

More importantly despite not being a young company it operates and reminds one of a growth tech firm in the mold of Google post its early initial public offering (IPO) years in 2005.

MTNN is also very well governed in terms of corporate governance, an important metric in today’s environment of allegations of corporate malfeasance against tech firms.

POST IPO GAINS

Remember that Google comparison, well MTNN also just launched its IPO this year and like Google’s 2005 IPO it chose to favor retail investors by pricing its shares at N169.00 per share, a significant 19.8% discount to the secondary market price of N202.50 at which it closed on 01 February 2022, prior to the offer.

Those familiar with Google’s IPO at the time (we are because one of the writers of this piece was studying for his MBA in the States at the time and a keen watcher of Jim Kramer’s Mad Money on CNBC), will remember Google’s offering was structured as a Dutch auction (favoring retail investors over institutions), where any investor can submit a bid for as few as five shares.

MTNN went further in its own IPO by offering one free share for every 20 units of shares purchased by retail investors, subject to a maximum of 250 shares for each retail investor.

Today with MTNN shares trading at N213 Per share it means investors who bought at the IPO price of N169 are sitting on 26% capital gains in just 2 months.

MTNN AS A GROWTH COMPANY

Stocks just don’t rise because they want to, they often do so because there is a mismatch between buyers and sellers. In other words, more people are demanding/bidding for the shares than those willing to sell. So in classic ecn101 fashion the price must rise.

But why are investors looking to buy more MTNN shares? It is because they view it as a growth company that is hugely undervalued.

MTN Nigeria recently announced its audited 2021 financial statement, reporting an impressive 23.3% growth in service revenue to N1.7trillion or $3.98 billion, despite losing 8million or 10.5% of its mobile subscribers in the year, due to restriction on new SIM sales and activation, as the country seeks to mitigate the use of unregistered telephone lines and those yet to be linked to the National identity management database, as a part of its measures to tame security challenges.

MTN grew profit before tax to N298.7 billion or $720million, translating to 45.5% year-on-year growth and an expanded margin of 18.1%, even as it noted impacts of naira devaluation on its foreign currency FCY-denominated cost as well as impulse of COVID-19 related expenses on operating cost.

Given the strong earnings growth, the company declared 39.5% growth in dividend to shareholders, announcing it would pay a final dividend of N8.57 per share to gross up its total dividend for the year to N13.12 or 7.8% dividend yield.

Investors bidding up MTNN shares believe there are many more catalysts to drive up profits in double digits in the future and we agree with them.

BUYING MTNN STOCK IS A BET ON NIGERIA’S ECONOMIC FUTURE

We are all seeing the handwriting on the wall with the world’s major economies gradually phasing out fossil fuels. Just as with the rise of major technology firms like the FAANG stocks (Facebook, Apple, Amazon, NVidia, and Google) in the United States we believe MTN will increasingly play a bigger role in Nigeria’s economy going forward as opposed to oil.

Today MTNN is the largest Telco in the country with 37.89% market share and 74.93 million subscribers. If you buy MTN stock, it is also a bet on young Nigerians who are more likely to use gadgets and smartphones that need data connections that MTNN provides.

PSB AS A GAME CHANGER

MTN Nigeria (MTNN) announced in a regulatory filing this week that it has received final approval from Nigerian regulators to run a payment service bank.

“The date of commencement will be communicated to the CBN (Central Bank of Nigeria) in accordance with its requirements,” the telco heavyweight said of the bank to be known as MoMo Payment Service Bank Limited in a note to the Nigerian Exchange.

The approval gives MTN the ability to operate virtually all the services offered by conventional commercial banks with the exception of granting credit and processing foreign exchange transactions.

“We want to leverage the financial inclusion drive. We plan to give people who don’t have bank accounts or even ATM cards the opportunity to be able to do banking services,” a senior official of the telco said.

“And we are leveraging our size. When we have subscribers of over 70 million spread across Nigeria with our infrastructural spread, we are well-positioned to cover everywhere. That’s exactly what we want to achieve.”

MoneyCentral estimates a N2 trillion opportunity for the Telco’s from the PSB.

The high cost of using formal financial services makes people use cash and other informal methods. An example of this is an “in-kind transaction”, where the sender, due to the high cost of sending money, sends goods to an exchanger who receives and sends the local currency equivalent to the intended recipient.

The Central Bank of Nigeria (CBN) put the value of such transactions at $2.19 billion or N906 billion in 2019. Bringing on board the 38 million unbanked Nigerians and cannibalizing fees and commissions from formal banks could add an additional N1 trillion in revenues for Telcos making a total of N2 trillion.

REGULATORY RISK LARGELY IN THE REARVIEW

There was a time that MTNN could do no right with Nigerian regulators and was regularly fined billions of dollars for perceived lapses and shortcomings.

Today all that is in the backburner with MTNN a model corporate organization. MTN Nigeria was recently recognized with two awards at the recently concluded National Tax Dialogue Event organized by the Federal Inland Revenue Service (FIRS).

MTN Nigeria was applauded as the most tax compliant organization and a top 20 taxpayer in Nigeria for the 2021 tax year. These awards reflect MTN Nigeria’s remarkable performance in remittance of its taxes despite the challenges posed by the pandemic.

In 2021, MTN Nigeria’s total tax contribution to all government agencies including the FIRS amounted to N757.6bn while FIRS collected a total of N6.4 trillion tax revenue in the year.

Specifically, MTN Nigeria paid a total of N618.7bn in direct and indirect taxes to the FIRS in the 2021 tax year, representing approximately 13.5% of the total FIRS collection for the year.

HUGE POTENTIAL UPSIDE FOR SHARES

Investment firm Meristem in a November 2021 note to investors who want to buy MTN stock put the fair value of MTN Nigeria (MTNN) shares at N273.62, a 27 percent upside from current levels.

“In arriving at a fair value (of NGN273.62) for MTNN, we adopted a blend of Free Cash Flow to Firm and Dividend Discount Models,” Meristem said.

“Our valuation was guided by the overall positive outlook of the firm as well as the risk factors facing the company. All key business areas show great potential especially in view of the Ambition 2025 strategic plan.”

Meristem is bullish about growth in Data for MTNN (due to the firm’s 4G technology investments) and the Fintech (driven by the limited traditional banking footprint and recently granted PSB license) segments.

MTNN recently launched its Ambition 2025 strategy aimed at driving growth across key business segments including data services, fintech and digital services.

To this end the company has focused on enhancing its network capacity to grow data traffic via expanding 4G network coverage across Nigeria.

As at 9M:2021, the company had achieved 4G network coverage of 69.20 percent. MTNN has the highest 4G subscriber base in the industry given the relative size of its network.

“The firm has also continued the expansion of its fintech business. The low traditional banking footprint, large cash economy and high unbanked population presents an opportunity for the firm’s fintech service to support the government financial inclusion drive,” Meristem said.

HOW TO BUY MTNN Stock

Potential investors can buy MTNN through retail friendly brokerages such as Meristem, Afrinvest, Chaka and United Capital.