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MTNN Plc | Q3-20 | First Glance: Resilient Performance Despite COVID-19 Headwinds
MTNN Plc | Q3-20 | First Glance: Resilient Performance Despite COVID-19 Headwinds

By Cordros Capital

MTN Nigeria Communications Plc (MTNN) recently released its Q3-20 unaudited results, reporting EPS decline of 0.7%, underpinned by a higher effective tax rate. This resulted in a 9M-20 EPS of NGN7.09. Annualised, the 9M-20 EPS tracks behind our estimates and consensus estimates by 17.8% and 20.6%, mostly due to the relatively poor outturn in Q2, due to the pandemic.

Revenue growth returned to the pre-pandemic run rate, accelerating from +8.4% y/y in Q2-20 to +16.6% y/y in Q3-20. The movement was primarily driven by growth in data (+48.7% y/y) and voice (+8.8% y/y) revenue.
Growth in data, which contributed 25.9% (Q3-19: 20.4%) to revenue, was delivered through a combination of increased subscribers (Q3 net additions: +1.7 million, in line with our estimate), increased usage (MB per user) and traffic (+135.6% y/y), all supported by increased network capacity and 4G penetration.  Notably, smartphone penetration grew to 45.2%, from 43.5% in Q2, and 41.7% in Q3-19, while 4G population coverage grew to 52.9%, up from 48.6% in Q2 and 35.4% in Q3-19.
The growth in MTNN’s subscriber base (Q3 net additions: +3.9 million, 3% ahead of our estimate) provided support for voice revenue (+8.8% y/y) which accounted for 56.3% of total revenue in Q3-20. According to management, the key drivers for this were the expanded customer acquisition touchpoints, and rural telephony initiatives implemented in the quarter.
During the quarter, total expenses grew by +23.2% y/y, owing to (1) increased BTS lease costs (due to the aggressive 4G site rollout), (2) exchange rate deprecation, (3) the effect of the 2.5% increase in VAT, (4) the change in the treatment of non-recoverable VT on lease payments, and (5) COVID-19 related costs.
EBITDA (+10.9% y/y) grew slower than revenue, with EBITDA margin printing 50.6%, 262 bps lower than in Q3-19, owing to the increased costs.
Net finance costs (+22.7% y/y) rose in Q3-20, following an 8.5% increase in finance costs – total debt grew +33.5% y/y to NGN508.91 billion (+29.0% y/y to NGN1.14 trillion incl. lease liabilities) as the company issued a NGN100.00 billion commercial paper in June 2020. Finance income (-39.9% y/y) declined amidst the lower yield environment compared to last year.
Overall, Q3 PBT grew 2.2% y/y. However, a higher effect tax rate of 31.5% (Q3-19: 29.5%) led to a 0.7% decline in PAT.
Management call Today at 3.00 pm Nigerian time. Nigeria dial-in +23419030040; UK dial-in +443333001417.

Comment: MTNNs operational performance in Q3 was in line with our expectations, with top and bottom line recovering strongly from the slump in the pandemic hit Q2.  Though currently tracking behind, we expect the Q4 outturn to bring earnings in line with our 2020FY estimates. The start of the company’s PSB operations remains the key catalyst as mobile money in Nigeria presents a compelling growth/return opportunity for MTNN, in our view. We look for the company to provide an update on the Nigerian PSB license on the conference call. MTNN’s share price is up 33.3% YTD and on our estimates, the stock is trading on 2020E P/E and EV/EBITDA multiples of 12.2x and 5.2x, a discount to emerging market peers 20.0x and 5.9x. Our estimates are under review.

[Image: 50cb5a24-91c7-4242-b621-ac2f8033fa2b.jpg]
MTN Nigeria Communications Plc (MTN Nigeria) today announces its unaudited results for the nine months ended 30 September 2020.

Key Financial Highlights:

Mobile subscribers increased by 3.9 million to 75.0 million

Active data users increased by 1.7 million to 30.7 million

Service revenue increased by 13.9% to NGN973.8 billion

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 9.1% to N497.9 billion

EBITDA margin declined by 2.3 percentage points (pp) to 51.0%

Profit before tax (PBT) declined by 0.6% to N211.6 billion

Earnings per share (EPS) declined by 3.3% to N7.1kobo

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