MTN offers great value – Rob Towell

MTN has released strong half-yearly results and is a good dividend payer, which makes it a buying opportunity at its current trading level of under R130 per share.

MTN is Africa’s largest mobile network operator and provides voice, data, fintech, digital, enterprise, and wholesale services to more than 281 million customers in 19 markets.

Over the last financial year, MTN generated R182 billion in revenue, EBITDA (earnings before interest, taxes, depreciation, and amortization) of R76 billion, and profit after tax of R17 billion.

MTN’s biggest operations are in Nigeria and South Africa, which generated R32 billion and R19 billion in EBITDA, respectively.

MTN’s interim results for the six months ended 30 June 2022 showed that the company continued its growth.

Service revenue increased by 14.8%, EBITDA increased by 13.7%, and its subscribers increased by 5.6% to 281.6 million.

Rob Towell, a senior portfolio manager at Sasfin Securities, said MTN’s share price had declined significantly over the last few months and now offers great value.

“MTN released a really good set of numbers recently, but the stock price has consistently declined and is now trading at under R130 per share,” Towell said.

“The company is paying good dividends, it has a good growth structure, and MTN is a buy at these levels.”

The chart below shows MTN’s share price over the last year.

MTN’s share price decline

Roy Mutooni, an analyst at Absa Asset Management, explained that many macroeconomic factors drive perception around MTN.

“People are scared about getting money out of Nigeria, which is unreasonable but not irrational,” he said.

He added that from a currency and economic perspective, Ghana – MTN’s third largest market – is struggling.

Governments are also looking to raise taxes, and mobile services like voice and data are soft targets.

He said the negative news compounded on MTN. “People, therefore, rate MTN lower, arguing that these factors must affect MTN and result in lower earnings.

Mutooni said if you ignore the negative news and only look at MTN’s numbers, it looks cheap and trades on a low enterprise-value-to-EBITDA multiple.

There are also discussions between MTN and Telkom related to MTN buying Telkom, which further muddies the water.

Jean Pierre Verster from Protea Capital Management explained that an arbitrage deal has a clear trading dynamic.

“If you think the deal will go through, you will buy the shares of the company being purchased and short the shares of the purchaser,” he said.

“In this case, if you think the deal will go through, you will buy Telkom’s shares and short MTN shares.”

He added that some hedge fund participants might be positioning for that, which can cause the MTN share price to fall.

MTN’s finances in a nutshell

MTN’s revenue increased steadily over the last five years, from R133 billion in 2017 to R183 billion in 2021.

The company’s net income also followed this trend, growing from R4.4 billion in 2017 to R13.7 billion in 2021.

Its balance sheet also strengthened, growing cash and cash equivalents from R16 billion to R39 billion and significantly decreasing long-term debt over the last five years.

Its EV-to-EBIT, which Mutooni mentioned, decreased from 16.45 in 2017 to 8.54 in 2021. It shows that MTN has low debt levels and higher amounts of cash.

Considering MTN’s strong financial performance over the last five years, it is easy to see why Towell sees MTN as a buy at these levels.

The charts below show MTN’s revenue and net income, in ZAR million, over the last five years.