A big catalyst is on the way for shares of MTN Nigeria.
MTN Nigeria’s imminent inclusion on the Morgan Stanley Capital International (MSCI) Frontier index could pave the way for as much as $8.5 million worth of buy interests from fund managers, according to calculations by investment bank, EFG Hermes.
MSCI, a global provider of research-based indexes and analysts, published results of its August quarterly review Thursday, which showed the Nigerian unit of South-African telecommunications company, MTNN, will be the sole addition to the frontier index come August 27.
MTNN’s shares gained 3.27 percent, Thursday, the biggest jump since May 24, according to the telco’s share price data tracked by Business Day.
Analysts expect MTNN’s share price to rally in the days leading to August 27 as investors take positions ahead of the buying boost to be unlocked by the Nigerian Telco’s inclusion on the MSCI frontier index. Shares of parent company, MTN Group, were however down 1.9 percent in South Africa on Thursday.
‘Based on our calculations, we also expect MTNN to join the MSCI FM 100 Index, as a result we expect it to see $5 million worth of passive inflows,” Olamide Shonekan of the sales and trading desk at EFG Hermes, said. “In addition, MTNN should see $3.5 million from Nigeria trackers at close of business 27 August (when the Telco will be officially included on the index),” Shonekan added. That comes to a total of $8.5 million in potential inflows.
MTNN will account for 0.8 percent of the MSCI frontier index and 12.9 percent of MSCI Nigeria Standard Index, ranking it the fourth largest Nigerian company on the index, behind Dangote Cement, Guaranty Trust bank and Nestle. Other local heavyweights on the index include Zenith Bank, Nigerian Breweries, Stanbic IBTC, Seplat, First Bank of Nigeria Holdings and Ecobank.
MTNN’s addition also means Nigeria’s weight will climb to 19.4 percent from 17.4 percent among African countries (bar South-Africa) on the MSCI frontier index, taking Abuja ahead of Kenya- whose weighting goes from 17.5 percent to 17.9 percent- and into third place behind Morocco (30.8 percent) and Egypt (22.7 percent). telecommunication companies will gain 2 percent weight within the index with MTNN’s inclusion. That implies that banks and telecommunication companies now account for 72 percent of MSCI Africa, without accounting for South Africa.
Nigeria largest mobile phone subscriber, MTNN, became the second largest publicly traded company in Nigeria after making its debut on the Stock Exchange three months ago on May 16, nearly three years after MTN Group first promised to list its Nigerian business on the Lagos stock exchange. The share sale was done via a listing by introduction, which meant only pre-existing Nigerian investors who previously bought and sold their shares over the counter were able to trade publicly.
The Group said at the time that an Initial Public Offering (IPO) was on the way.
MTNN’s listing had an immediate impact on the stock exchange, adding the regulatory maximum 10 percent daily gain for a week. Nigerian stocks were on track for their ninth straight day of losses until MTNN’s shares listing reversed the loss into a gain of 0.5%, the best showing in almost a month. That charge soon slowed as the general bearish sentiments towards Nigerian stocks soon took the wind out of the sails of the telco. MTNN’s N132.50 Thursday price is 11 percent lower than a peak of N140 achieved May 23.
“The MSCI frontier inclusion of MTNN will pave the way for inflows from fund managers and investors,” said Wale Okunrinboye, head of research at Lagos-based Nigerian pensions fund manager, Sigma Pensions.
“The company’s impressive half year numbers and future expectations for revenue and profit growth only strengthen that investment case,” Okunrinboye added.
MTNN looks set to break a record it set last year for being the first public company to post revenues in excess of a trillion naira.
According to half year numbers published by the Telco last month, revenues hit N566.95 billion in the first half of 2019, up 12 percent compared to last year.
Going by the half year trend, MTNN is on course to do N1.14 trillion in revenues by year-end, 9.6 percent higher than the N1.04 trillion recorded in the whole of 2018.
Despite the positives to take away from a Nigerian company posting trillion naira revenues back to back, a single digit revenue growth is hardly anything to cheer in a country with double digit inflation rate, as it is a sign of a weak economy and shrinking consumer disposable income.
The revenue growth was driven by a 31.7 percent jump in data revenue and 21.2 percent increase in fintech revenue. Voice revenue also recorded growth, following an 11.4% rise compared to last year.
The telco’s subscriber base was also up 5.7 percent year to date to 61.5 million while active data subscribers increased by 11.0% to 20.7 million.
An increase in smartphone penetration to 39.2% from 37.1% also contributed to the company’s higher revenue.
On the cost side, MTNN maintained its cost efficiency as the EBITDA margin came in at 53.8% in H1-19, which was ahead of consensus analysts’ estimate.
Direct network operating costs were down by 21.1 percent in the first half period under review.
With costs largely trending downward, profit before tax in the first half of the year came in at N141.80 billion, a 31 percent increase compared to the same period last year.
Profit before tax printed lower than expected as interest expense climbed on the back of a N200 billion debt secured by the Telco in the second quarter of 2019.
Interest expense rose by 45.8 in the period under review, driven by the additional debt. Gross debt rose by 68.3 percent year to date to N295.11 billion as at Q2-19 as against N251.79 billion as at Q1-19.
Profit after tax rose by 34.8 percent to N98.93 billion in the first half period under review.
LOLADE AKINMURELE
