MTN Nigeria – Transforming the Nigerian Telecommunication Industry
Company Overview
MTN Nigeria Plc., the largest telecommunications company in Nigeria with an estimated 42.5% market share, has unarguably been a force to be reckoned with in the communications industry since 2001 when it commenced operations in Nigeria. The telecommunication industry in Nigeria is exposed to some headwinds such as regulatory policies and unfavorable macroeconomic environments such as high levels of inflation and interest rate. However, MTN continues to beat the odds and navigate through these storms by investing heavily in network infrastructures that have expanded its 4G and 5G coverage across the country and its innovative fintech payment service bank brainchild MoMo. The company’s total revenue for 2022 was N2,012,272M ($4,363.62M), representing a 21.1% growth from its 2021 revenue and a mouthwatering 72% increase from its full-year 2019 revenue when it got listed on the Nigerian stock market.
MTN Nigeria’s profit for 2022 was N361,532M equivalent to $784M, which signified an impressive 21.1% growth from 2021. However, earnings for Q2 2023 were reported as N27,389M ($36M), a significant decline of 67.7% from the N84,805M ($112M) generated in Q2 2022. From our review of the company’s Q2 2023 results, the decline in earnings could be attributed to the significant increase in the company’s finance costs which consequently caused earnings (profits after tax) to decrease for the period and thus it is always important to think long-term and be forward-looking when making objective decisions on the performance of a company’s earnings. For emphasis, finance costs for Q2 2023 were reported as N182.05M ($241,547), a staggering 260% increase from the N50.6M ($122,040) the company incurred as finance costs for Q2 2022.
In a similar light, the company’s earnings per share (EPS), which represents a piece of the pie for shareholders, declined by 63% to N1.60 kobo in Q2 2023 from N4.37 kobo in Q2 2022. To hit the nail on the head, this implies that the company earned N1.60 kobo in Q2 2023 on each share held by shareholders, lower than the N4.37 kobo the company earned in Q2 2022 on each share held within that period by its shareholders.
The company was listed on the Nigerian Stock Exchange (now the Nigerian Exchange Group) in 2019, returning 105.13% since its IPO. Similarly, the telecommunications giant has returned 41% on a year-on-year basis (YoY), outperforming the NGX All-Share Index return of 31% YoY. However, MTN returned 62% over the last two years, lower than the NGX All-Share Index return of 67% within the same period.
The chart above provides the monthly performance of MTN’s share price against the Nigerian stock market, measured as the All-Share Index since the company was listed on May 16, 2019. From our trend analysis, we can assert that a positive correlation exists which affirms that a positive performance in the share price of MTN would largely have an impact on the return of the Nigerian stock market in a positive direction and vice versa. This high correlation is unsurprising given MTN’s prestige position as the second most valuable quoted company in Nigeria, accounting for an estimated 17% of the total market capitalization of the Nigerian Exchange Group (NGX) as of July 2023. For clarity, MTN’s market capitalization stood at N5.33 trillion ($6.877 billion), standing in second position to Dangote Cement’s market capitalization of N5.99 trillion ($7.728 billion), as of July 2023. Similarly, the Nigerian stock market closed the month of July 2023 with a market capitalization of N35.01 trillion ($45.173 billion).
Industry Dynamics and Competitive Advantage
The telecom sector in Nigeria stands out as one of the most expansive and rapidly evolving across the African continent. Projections indicate a robust growth trajectory, with an estimated compounded annual growth rate (CAGR) of 5.78% anticipated between 2023 and 2028. This momentum is poised to propel the industry’s valuation to an impressive $11.99 billion by the year 2028. The driving forces behind this expansion are attributed to the country’s burgeoning population and the escalating trend of urbanization.
MTN stands among the top 10 global telecommunications companies in terms of subscribers, with nearly 300 million, holding a substantial lead as Africa’s largest telco. Due to Africa’s demographics, MTN is poised for continuous subscriber growth over the long term. Beyond telecommunications, MTN has established itself as a major player in fintech. In 2022, its mobile money division managed transactions worth approximately $220 billion, surpassing the transaction volume of Square’s Cash App. Back in 2019, as the curtains opened on MTN’s NGX debut, it grasped a 38% market share, a spotlight-stealer from the get-go. However, the share surged to 42.5% in December 2022 as if MTN’s story was written among the stars. Switching costs chain customers, like a magnetic pull locking them in.
MTN continues to ride high on a wave of consistent profits and a robust top line, giving it a clear economic upper hand. This telecom giant not only shines in terms of return on assets and equity but also boasts an impressive lineup of factors driving its success. Think brand recognition, a massive army of subscribers, game-changing mobile money, and hefty investments in infrastructure.
In the first half of 2023, MTN outdid itself yet again. With a booming N562.68 billion ($745.09 million) in voice revenue and a staggering N470.01 billion ($622.38 million) in data revenue, the numbers have surged by 12.1% and a whopping 34.9% respectively compared to the previous year’s figures of N501.85 billion ($664.52 million) and N348.4 billion ($461.45 million). However, MTN reported N1.04 trillion ($ 2.24 billion) in voice revenue and N764.82bn ($1.65 billion) in data revenue in 2022.
This was a 6.78% increase in voice and a 46.93% increase in data revenue from the previous year’s report of N970.85bn ($ 2.09 billion) and N520.54bn ($ 1.12 billion) respectively.
Sure, there’s been a slight dip in active data users due to some telecom code shakeup, but that hasn’t stopped MTN’s growth march. Covering a whopping 80% of the population now, the MTN network’s reach is seriously impressive. And speaking of data, it’s been guzzled up by 28.2%, which is a clear testament to MTN’s unmissable presence in the market. This formidable foundation becomes even more evident when analyzed through the lens of Porter’s Five Forces framework, which provides a comprehensive view of the competitive landscape.
Porter’s Five Forces Analysis
- Threat of New Entrants: Entry barriers are high due to the substantial infrastructure and capital investment required (approximately $70 billion) according to NCC. Growing tele density, population, and internet penetration limit newcomers, leading to 90% of local operators exiting.
- The threat of Substitutes: MTN’s strong brand and market presence mitigates substitute threats, but internet-based services like WhatsApp and Zoom challenge its voice revenue. The availability of alternative options could lead to significant growth opportunities for data services. Competitors like Airtel and GLO also offer affordable plans.
- Bargaining Power of Suppliers: MTN’s size and market power yield favorable supplier terms, as reflected in a 16% gross margin increase over four years which is lower than Airtel’s 36% gross margin increase as a result of heavy investment in customer acquisition and infrastructure. Diversification, favorable contracts, and local production reduce dependence on suppliers for the telecoms behemoth.
- Bargaining Power of Buyers: Nigeria’s diverse and large market grants buyers significant power. MTN adapts by delivering quality services, competitive pricing, and innovation to maintain and expand its customer base. An example of innovation is the MTN homeland mobile remittance application that allows customers from Europe to send money and airtime to people in Africa and parts of the Middle East.
- Competitive Rivalry: The Nigerian telecom sector is fiercely competitive, featuring major players like MTN, Airtel, Glo, and 9mobile, as well as regional competitors. MTN sustains its market position by embracing new technology, enhancing services, competitive pricing, and impactful marketing.
Management
The current CEO, Mr. Kariola is a highly reputable man in the industry and he has a track record of delivering results. Since his appointment, MTN Nigeria has had some notable achievements such as the rollout of 5G services and transforming its mobile money services. MTN Nigeria has seen its top and bottom lines expand since Mr. Toriola assumed office, with revenue and net profit increasing since the full year of 2021.
Revenue Trend Under Karl Toriola (2021 – 2022)
For the fiscal year ending on December 31, 2022, Mr. Karl Toriola was paid a total remuneration of $1,896,155 (N850 million), a significant rise from the $892,882 (about N368 million) he received in 2021. This increase contrasts sharply with the $1,478,668 (approximately N567 million) earned by his predecessor, Mr. Ferdinand Moolman, in 2020. In comparison, the CEO of Airtel Africa, Mr. Segun Ogunsanya was appointed as the Chief Executive Officer and joined the Board of Airtel Africa on 1 October 2021. He received a sum of $1,404,000 (approximately N577 million) according to the company’s full-year 2021/22 report. This was an increase from the $1,317,000 (approximately N541 million) paid out to the former CEO of Airtel Africa Mr. Raghunath Mandava in 2020/21.
Financial Health
The firm’s long-term debt, known as non-current liabilities, has been relatively stable over the last four years, experiencing a 3.5% increase in 2023. However, its current liabilities surged by 39% in 2023 due to a rise in its miscellaneous current liabilities. This has led to concerns about the liquidity of the firm as its short-term liability grows. High short-term liabilities can shrink MTN’s liquidity position, impacting its ability to meet its short-term financial obligations and maintain smooth operations.
Growth Trajectory
MTN Nigeria is currently growing at 20% while its competitor Airtel Africa, is growing at 15%. MTN Nigeria is infamously known as the cash cow of the industry, with compelling growth through its implementation of innovative strategies that have improved its customer service and diversified its revenue stream. The company reported a 5-year average growth of 18% and it is also expected to post a 15.5% growth rate and a 7.5% earnings-per-share annually.
Profit Consistency ✅
MTN Nigeria has delivered consistent net earnings to shareholders for the last 5 years. MTN’s shareholders are filling up the coffers from the gold mine which has returned an average of 38% compared to Airtel’s Africa net earnings growth of 26%.
Company’s Year-on-Year Net Profit
A cursory look at MTN’s profitability shows an average of 53.28% in gross margin over the last four years. Similarly, its net margin and operating margin have averaged 17.37% and 34.77%, respectively, over the last four years.
MTN vs Airtel Africa Profitability 4-year Average (2019-2022)
Source: FactSet
Liabilities’ Level
MTN’s debt level rose to N2.87 trillion ($3.8 billion) in Q2 2023 from N2.3 trillion ($5.3 billion) in 2022, which signifies a 21% increase. These liabilities comprise trade payable, tax payable, and loan portfolios, which were primarily sourced from consortiums of banks and development agencies, etc. Its non-current liabilities, which are debt instruments that are not due to be repaid within a year stood at N1.2 billion ($2.6 million) while its current liabilities due to be repaid within a year was N1.6 billion ($3.5 million). MTN, along with other telecommunications operators, recently walked a tightrope with the move to disconnect commercial banks due to unpaid debts, which stood at N42 billion ($101 million) in 2021 and have since risen to over N120 billion ($260 million).
Revenue Breakdown
MTN Nigeria’s revenue was primarily driven by both voice and data services; others included handsets and accessories, digital, value-added services, and other revenues. In Q2 2023, the company’s total revenue had a healthy uptick of 23.3% as it grew to N590 billion ($782 million) in comparison with Q2 2022’s N479 billion ($1.155 billion). Voice services contributed 48% to the total revenue with N285 billion ($377 million), growing YoY by 22.7% while data services added N242 billion ($320 million) to the company’s total revenue, a significant 41% of the company’s revenue.
Revenue Breakdown by Services
For the full year 2022, voice services contributed 42% to the company’s revenue, which amounted to N864 billion ($1.934 billion) from N815 billion ($1.982 billion) in 2021, a 6% growth. The data service also contributed 37.9% to the company’s revenue with N763 billion ($1.7 billion), a 48% increase from 2021’s N516 billion ($1.2 billion). Others contributed 21.1% to the company’s revenue. The increase in the company’s revenue demonstrated its commitment to building commercial and financial momentum that can navigate a challenging operating environment.
Current Status
The adverse effects of the macroeconomic crisis, such as Nigeria’s 22.8% inflation, cash shortage in Q1 2023, forex volatility, scarcity, and supply chain uncertainties, will be a bitter pill to swallow as they tend to affect the company’s financial performance. Nigeria’s inflation and naira devaluation from N461.10/$1 in December 2022 to N758.08/$1 in June 2023 are expected to affect the company’s financials with an increase in costs and financing expenses. In addition, finance costs will balloon and decrease year-end profitability despite an increase in revenue. On a positive note, MTN continues to solidify its commercial and financial momentum. It expanded its mobile subscriber base with 1.5 million subscribers in H1 2023 while its Fintech grew by 182% from 1.1 million subscribers to 3.1 million by Q2 2023. These underpinned a solid growth in its revenue generation and strong EBITDA margin.
Company’s Outlook
The company’s CEO, Karl Toriola, declared the company’s aim to achieve 80 million active data users by 2025 year-end through its CHASE program. CHASE, stands for coverage, handset access, affordability, service bundling, education, and ease of access.
MTN’s Impact on the Nigerian Economy
To summarize, MTN has contributed immensely to the Nigerian economy since it commenced operations in the country in 2001. Its impact includes contributing significantly to the government’s revenue through direct and indirect tax payments. MTN is also at the forefront of promoting digital inclusion through investment in network infrastructure to provide and promote internet access to Nigerian communities. In addition, MTN also has a robust corporate social responsibility program that focuses on education, health, and economic empowerment. Furthermore, the company is a leader in driving innovation in the Nigerian telecommunications sector and also one of the largest employers of labor in Nigeria. It boasts of a huge presence across the country with over 40% market share in the telecommunications sector. Thus, it is safe to say that the continued growth and performance of the company would continue to contribute positively to the Nigerian economy.
