Renaissance Capital says it overweights MTN SA, telecoms firm, despite risks that currency devaluation in its largest market, Nigeria may weigh on earnings.
“Our preferred large cap play remains MTN, which has been unduly punished in our view. As we stated in our report (Global: Frontier and emerging telecoms – The risk/reward check book, October 17, 2014), the scenario of an average exchange rate of N212/$ in FY15 (and the accompanying cross rate of N19.20/ZAR) would be required to reduce MTN Group’s FY15E EPS growth to 0 percent. Our current forecast is for an average of N189/$ (prior: N166/$) for FY15,” RenCap analysts led by Ahmed Motara, said in a December 10 note.
RenCap says its assessment of the current fuel savings from diesel in Nigeria suggests MTN would not achieve a meaningful saving sufficient to offset the declining naira owing to lower oil prices.
“We do, however, find that the market has perhaps overly penalised MTN’s share price, with our average forecast of N189/$ for FY15 perhaps too conservative, relative to other estimates in the market. We believe our naira view is reasonable, and we find MTN attractive at current valuations,” the analysts said.
Nigerian subscriber growth and South Africa subscriber growth are starting to show signs of slowing year on year (YoY), according to Rencap.
RenCap says its positive thesis on MTN continues to hinge on fundamentally strong African operations, which in constant currency continue to benefit from exposure to relatively high GDP growth environments.
MTN is expected to report FY14 results on Wednesday, March 4, 2015. The key elements of this result will be the new subscriber guidance that is provided for FY15 and the expected capex spend.
“We expect MTN to show less than the 8 percent subs growth it expected from SA in its FY15 guidance, with a focus on accelerating subscriber growth rates in Nigeria. We also expect MTN will highlight increased competition emerging in its large opco, affecting its ability to compete unhindered,” RenCap says, saying “overall, we think that macro factors will be more relevant at this point in time, with the February 2015 elections in Nigeria likely to give some added certainty for FY15 on how the N/$ is likely to evolve, as well as the Nigerian political situation.”
PATRICK ATUANYA
