MTN’s woes explained

MTN’s share price plummeted after it released its annual results for the year ended 31 December 2022, which missed expectations.

MTN increased its revenue from R182 billion to R207 billion, a 14% increase, and grew its net income by 41% from R13.8 billion to R19.3 billion.

The Nigeria segment, MTN’s largest revenue contributor, had an impressive expansion, with its revenue increasing by 29%. In South Africa, MTN increased revenue by 4%.

The results are strong compared to its historical performance. Its double-digit revenue growth was the second-largest increase since 2009.

However, aspects of the delivery of the results contributed to the weak performance in the share price.

MTN CEO Ralph Mupita reflected negatively on the state of South Africa, pointing to many difficulties within the country that need to be addressed.

Troublesome areas include energy, transport, crime, corruption, and unemployment. South Africa risks becoming a failed state if these trouble areas aren’t addressed, said Mupita.

MTN also revised its outlook for South African margins downward to a range of 37% to 39% from the previous 39% to 41% range. MTN further pointed out that load-shedding cost the company R695 million in EBITDA.

The negative outlook, together with lower guidance, could have impacted the response from investors.

However, all companies in South Africa face these challenges. If MTN’s share price response was solely based on a worse outlook, Vodacom, which is much more exposed to South Africa, should have been more affected than MTN.

Benguela Global Fund Managers CIO Zwelakhe Mnguni explained that the banking market crash caused by the closure of Silicon Valley Bank had ripple effects on the Nigerian economy.

He noted that Nigeria, where MTN generates the bulk of its revenue, is dependent on the banking sector, as the country is known to have low levels of liquidity.

Banks would be reluctant to lend more money to economies like Nigeria if the banking sector is under pressure.

Mguni added that this situation would significantly impact Nigeria’s economic growth and, therefore, companies operating there.

This situation makes it difficult for Nigeria to access US Dollars without putting pressure on the Naira. A depreciation in the Naira would impact MTN’s Nigerian margins negatively.

Drikus Combrinck from Capicraft said MTN’s share price decline is also a result of bad timing.

“Increased risk means foreigners were selling whatever they could, and MTN is a popular and liquid stock in offshore emerging market portfolios,” he said.

It was, therefore, a bad day for MTN to release disappointing results with a poor outlook.