Thitherto investors were increasingly perturbed that the Nigerian market was becoming problematic because of the heavy fines slapped on MTN Nigeria- a subsidiary of MTN Group-by local authorities.
However, MTN Communication Nigeria, which became the second largest company by market capitalization after it listed shares on the floor of the bourse, has surmounted the temperest storm as it continues to propel Group revenue.
The largest carrier by subscriber in Africa’s largest economy just released its second quarter financial statement that showed improvement in key performance indices as it continues to leverage on the country’s rising young population that crave for smart-phones.
Increased Airtime and subscription underpins revenue
Revenue increased by 21.12 percent to N566.94 billion in June 2019 from N505.67 billion in June 2018 due to an uptick in voice data revenue.
A breakdown of revenue figures shows airtime and subscription segment, which makes up 63,30 percent of top line figure, was up 9.72 percent to N359.03 billion in the period under review as against N327.20 billion the previous year.
The data revenue was up 29.48 percent to N103.32 billion in June 2019 from N79.79 billion the previous year.
MTN Nigeria has been magnifying its data base. It added 3.3 million, subscription to its network, increasing its subscriber base to 61.50 million.
Impressively, data subscribers increased by 2.10 million to 20.70 million in the period under review.
Cost curtailment bolsters profit margins.
Total production costs (direct and indirect cost) were down 9.51 percent to N407.14 billion in June 2019 from N368.41 billion the previous year.
A breakdown of expense figures show direct network operating costs fell by 20.14 percent to N117.87 billion in the period under review from N149.44 billion the previous year.
MTN Nigeria is spending less to produce each unit of products as total cost of sales ratio fell to 71.80 in the period under review from 72.85 percent the previous year. This means the company spent N0.718 on production cost to produce each unit of smart phones.
The cost control measures put in place by management and boards of directors has yielded fruits as operating performance improved.
Earnings Before Interest and Taxation Depreciation and Amortization (EBITDA) increased by 39.93 percent to N304.86 billion in June 2019 from N217.73 billion the previous year.
Earnings before interest otherwise known as EBIT moved by 39.48 percent to N190.40 billion in the period under review from N136.50 billion the previous year.
EBITDA Margins improved to 53.80 percent in June 2019 from 43.10 percent the previous year; a higher EBIDTA margins means the company has lowered cost whilst boosting operating performance.
EBIT margin followed the same growth trajectory has it increased to 33.58 percent in the period under review from 27 percent the previous year.
Efficient utilization of shareholders’ resources bolsters returns
MTN Nigeria is increasing its ability to generating profit without needing as much cash and it is also deploying shareholders’ resources in generating higher profit.
Annualized return on average equity (ROAE) moved to 123.40 percent in June 2019 from 112.90 percent the previous year while the annualized return on average assets increased to 16.30 percent in the period under review as against 14.70 percent the previous year.
The largest telecoms company in Nigeria has turned each Naira generated in sales into higher profit as net profit margin increased to 17.45 percent in June 2019 from 14.51 percent the previous year.
Pretax margin-another measure of profitability and efficient-moved to 25 percent in the period under review from 21.45 percent the previous year.
MTN Nigeria’s profit after tax increased to 34.79 percent to N98.98 billion in the period under review from N73.40 billion the previous year while profit before tax was up 30.86 percent to N141.79 billion in June 2019 from N108.14 billion the previous year.
MTN Nigeria’s operating income can cover interest expense as its times interestcoverage ratio of 3.22 times is above the international bench mark of 1.50 times.
The telecom giant’s capital expenditure (CAPEX) spends was up 63.83 percent to N105.80 billion in June 2019 from N96.10 billion as at June 2018.
The company made significant network investment to improve network quality and improve and expand its 4G network coverage. It said the recent work to revamp its data prices and accelerate its 4G network has put it in a strong competitive position to offer more value to its customers.
Despite the settling a N110.0 billion fine imposed on it by the regulator authorities for failure to disconnect 5 million customers, MTN Nigeria has an operating cash flow of N25 billion. This means it has the cash to settle its debt, pay dividend to shareholders, and fund future expansion plans.
The company has an attractive valuation- as price to earnings ratio stood at 12.86 times as at the time of reporting- and investors could swoop on its shares on the expectation of growth in future earnings as the country’s environment remains a benign environment.
The growth potential of MTN’s business is huge considering mobile penetration rate of 86 percent as at the first quarter of 2019 (as at Q1’2019) which could help in driving voice (accounting for 74.9 percent of revenue as of Q1 2019) and data revenue (accounting for 16.6 percent of revenue as of Q1 2019).
Nigeria’s population demographics evident in its youthful population also serve as an opportunity for growth in data revenue given the growing usage and acceptability of social media and internet surfing for communication.
Development of advanced technology such as the 5G technology as well as increasing coverage of 4G networks should also support growth in data revenue in the medium to long term.
A rebound in consumer spending, which is also a boost for data bundle consumption, will help underpin MTN Nigeria’s earnings.
BALA AUGIE
