Mobile operator MTN is the most popular JSE-listed share among South Africa’s top equity analysts and fund managers.
MTN is Africa’s largest mobile network operator and provides telecommunications and financial services to 282 million customers in 19 markets.
MTN’s primary sources of revenue are voice (48%), mobile data (33%), and fintech (9.3%).
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 continued its growth in 2022, with service revenue increasing by 14.8%, EBITDA increasing by 13.7%, and its subscribers increasing by 5.6% to 281.6 million.
Despite this strong growth, MTN’s share price was hammered in 2022 – declining from R208 per share in March to under R130 per share in September.
Many stock pickers are now picking MTN, saying it offers great value at current levels.
Roy Mutooni from Absa Asset Management said the management team at MTN has delivered everything they promised.
“They have reduced their gearing, slimmed down their operations, and become Africa focused,” he said.
“MTN continues to get money out of Nigeria, and their disclosure is fantastic. They have not put a foot wrong.”
Mutooni added that the operator is showing strong growth in service revenue and net profit and is trading at a price-to-earnings (P/A) ratio of 12.5.
“It feels cheap to me, and the market is pricing in too much risk. MTN offers investors good upside over the medium term,” he said.
Independent Analyst Jimmy Moyaha said the current share price offers investors a cheap entry point into MTN.
He added that the operator’s strong performance in South Africa, Nigeria, and Ghana bodes well for its long-term prospects.
Robert Towell from Sasfin Securities said MTN released great results, but the stock price has consistently declined and is now trading at under R130 per share.
“The company is paying good dividends, it has a good growth structure, and MTN is a buy at these levels,” he said.
A look at MTN’s finances
From 2015 to 2019, MTN experienced a slowdown in revenue growth. Since 2019, the mobile operator has grown its revenue at a robust pace.
It is important to consider the regions where MTN generates most of its service revenue.
Service revenue is related to providing services, including monthly access charges, calls, data, and roaming.
Service revenue is an important measure for mobile operators, as it is where they make the most of their profit.
Nigeria contributes the most to MTN’s service revenue at 35%. South Africa is the second largest regional contributor at 23%.
Nigeria has grown its share of service revenue over the last four years, while South Africa’s contribution is declining.
The graphs below give MTN South Africa and MTN Nigeria’s service revenues over five years.
MTN South Africa only increased its service revenue from R33.8 billion to R39.5 billion from 2017 to 2021.
MTN Nigeria’s service revenue increased from R40.1 billion to R59.98 billion over the same period.
MTN Nigeria managed an average annual service revenue growth of 11.67%. South Africa, in comparison, only grew by 4.01% per year, on average.
MTN generates its highest profit margins in Nigeria. Over the last financial year, MTN recorded a 53% EBITDA margin in the country.
In comparison, MTN South Africa only has a 38.9% EBITDA margin.
MTN’s profitability is, therefore, closely linked to its performance in Nigeria.
As shown below, Nigeria’s contribution to MTN’s total EBITDA has significantly increased from 30% in 2017 to 40% in 2021.
The data shows why Nigeria is such an important part of MTN’s operations, despite the uncertainty related to the country.