IG Markets: MTN Full-Year earnings, will Nigerian Operations weigh on earnings?

By Shaun Murison

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MTN’s share price over the last year

Africa’s largest telecommunications business is set to report financial results for the year ending December 2014, in which investors will perhaps find most interest in the company’s Nigerian operations.

MTN’s share price has been under pressure, particularly in the latter part of the year as a falling oil price has weighed negatively on the Nigerian economy and in turn hampered sentiment surrounding businesses domiciled therein. The oil producing nation is where the MTN Group generates roughly a third of its revenue, with the largest portion of its underlying earnings (EBITDA around 48%) historically (FY 2013) being realised from within the region.

In the reporting period, the MTN Group has concluded the sale of more than 9000 of its cellphone towers in Nigeria to IHS Holdings. In a partnership agreement with IHS Holdings, MTN has retained 51% ownership whilst still leasing the towers. The deal hands over operational control to the tower specialist (IHS Holdings) and shared infrastructure with other mobile communication providers. The transaction will have resulted in a capital injection which has boosted the Groups attributable earnings per share figure to an expected range of between 15% and 25% higher than the prior financial year. Excluding the one off items, the company has guided through a trading statement that Headline Earnings per Share are expected to increase between 5% and 15% over the period.

Reporting back to the South African (JSE) listed holding company, unfavourable exchange rates as the Naira weakened (forced in part by the Nigerian Central Bank to combat a falling oil price) would have further inhibited the earnings growth to the aforementioned guided range. The South African operations of MTN have found a saturated market environment equate to a competitive pricing environment as providers compete aggressively on call rates (especially prepaid). Being the second largest mobile provider in South Africa has also resulted in a further revenue setbacks due to the ICASA imposed mobile interconnect rate asymmetry.

Meaningful revenue growth is expected from data sales and will continue to find increasing relevance in upcoming results. The interim results saw a 38.9% increase in this department, a trend evident within the sector as a whole. MTN benefits from access to low penetration markets where internet being accessed from the palm of your hand is an increasing commonplace. Data revenue is expected to contribute around 17% of total group revenue.

While MTN looks set to have had a more challenging year, amidst a difficult economic climate, total group revenue is forecast at R147 064m for the year, 7.7% higher than the prior year’s comparative. The company remains well poised in low penetration, high populous markets, set to capitalize on future growth from the products and services offered which now become essential utilities rather than luxuries. In the current market environment, where investors are searching for yield, the MTN Group should continue to offer a healthy dividend in excess of 5%.

 

 

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