MTNN Poised For another Impressive Performance

Coy: MTN-NIGERIA Plc (MTNN)
Rating: Hold

Final Dividend: N8.57

Interim Dividend: N4.55
Current Market Price: N230.00
Year High: N270.00
Year Low: N185.20

Intrinsic Value: N234.78
By: Jeariogbe Tunde Segun (Equity Analyst)

Key Financial Ratio

• In this report we observed the first full year financial document released by the management of MTN-Nigeria after it listed on the floor of the Nigerian Stock Exchange, representing the year ended 31^st December, 2021.
• At the tail-end of the report, we briefly observed the first quarter financials of MTNN for the period ended 31^st March, 2022. Compared the investment ratios to estimates in the similar quarter of 2021, to established growth strength and other investment ratios
• We carefully compared the said report with similar figures posted in the corresponding year, to establish growth and other ratios
• In summary, the result shows an average improvement in both top and bottom line along with reasonable adjustments in the liability indices. Meanwhile, Ratio analysis showed a mixed performance as explained below
• Complementing the previously released interim cash dividend of N4.55, the management for MTN-N further proposed a final cash dividend of N8.57 for the year ended, 31^st December, 2021

Statement of Comprehensive Income

• At the end of 2021 financial year, the Turnover figure is valued at N1.15 trillion, this is 22.87% above the N1.34 trillion reported at the end of 2020 financial year
• Direct cost on the business was valued at N390.47 billion, higher than the N310.24 billion used through the 2020 business session
• Operating Profit therefore stood at N584.74 billion versus N426.71 billion in the corresponding year
• We estimated MTN-N Operating Expenses at N386.75 billion, this is 10.34% above the N350.50 billion used in 2020
• Finance Cost within the two financial year compared in this report grew by 11.35% to stand at N159.99 billion versus N143.68 billion in the corresponding year (2020)
• Thus, Profit before Tax recorded at the end of the quarter stood at N436.68 billion compare to N298.87 billion in the comparable year
• Having taken care of the Tax Expenses (N138.03 billion Vs N93.66 billion) it reported a total of N298.65 billion as profit for the year, this is same as 45.53% improvement over 2020 profit
• See below for detailed figures

Statement of Financial Position

• Current Assets was valued at N597.28 billion at the end of the year under review, compared to N522.81 billion in the corresponding year
• Non-Current Assets equally grew by 15.38% to stand at N1.66 trillion as against N1.44 trillion in the similar year
• Thus, MTN-N Total Assets valuation improved from N1.96 trillion to N2.25 trillion, same as 15.08% growth within the two years compared
• Current Liabilities appreciated by 21.79% to stand at N906.00 billion in the current year whereas, it was N743.91 billion in the corresponding year
• Non-Current Liabilities is valued to worth N1.08 trillion, as against N1.04 trillion in the corresponding year
• Thus, Total Liabilities there grew by 11.73% over the comparable year, as it moved from the previously reported N1,78 trillion to N1.99 trillion
• Netting the Total Assets and Total Liabilities, it was established that, Net Assets appreciated to N264.98 billion from the previous valuation of N178.38 billion at the end of 2020 financial year
• See the above table for details

Financial Strength/Solvency Ratio

• As Noted above, MTN-N Assets valuation is higher than the liabilities, thus, Debt Ratio is valued at 0.88x as against 0.91x in the corresponding year. This simply shows an improvement in the company’s financial strength within the two years compared, since this means the business is now generating enough cash flow to service its debt
• We have estimated a Debt to Equity Ratio of 752.72% for MTN-N. This signifies that the company used far more debt to finance assets through the year compared to equity. Nevertheless, the situation is adjusted when compared to the estimated Debt to Equity Ratio in the corresponding year. See below table
• Revealing the same status, that is, confirming the fact that the business used more debt against equity, the estimated equity ratio stood very low at 11.73%, technically, it can also guaranty investors’ safety in the business
• Our Estimated Beta Value shows that the shares of MTN do not trend frequently, though traders trade the stock frequently.

Profitability Ratio

• EBITDA Margin improved by 11.53% within the two years compared. Nevertheless, at 35.35% margin from turnover, one can safely conclude that the communication business is profitable
• Pre-Tax Margin grew by 18.92% to stand at 26.40% as against N22.20% in the corresponding year. This is equally an impressive margin, though there are room for improvements
• Cost of Sales is estimated as 23.60% up from the previously estimated 23.04% in the comparable year. This shows the management is fully in control of the direct cost on its business, also, it should be noted that, this is a major contributor to the profitability
• Confirming the effective use of debt through the year, the company achieved an outstanding and practically uncommon Return on Equity 112.71% through the year, though this is fairly lower than the 115.04% recorded at the end of 2020 financial year
• See below for detailed profitability ratios

Efficiency Ratios

• Confirming management efficiency, the Operating Expenses to Turnover ratio dipped by 10.20% within the two compared year, as it now stands at N23.38% from 26.03% in the corresponding year
• In similar trend, Turnover to Total Assets Ratio improved by marginal 6.77% to stand at N73.21% versus 68.57% in the comparable year
• See below for other observed efficiency ratios

Investment Ratios

• The management of MTN earned N14.67 on each units of its listed shares, this is 45.53% improvement over the N10.08 earned at the end of 2020 financial year
• Please note that, if the said cash dividend is added to the previously paid N4.55 interim dividend, the company had paid N13.12 of its annual earnings as dividend. In other words, Pay Out Ratio is 89.43% while Retention ratio is 10.56%
• In the same trend, Total Comprehensive Income improved over comparable year by 46.05% as shown in the below table
• P/E-Ratio stood at 14.11x against the estimated 17.26x in the corresponding year
• The Earnings is a yield of 7.09% on the price of MTNN as at the day this report was made available to the investing public. This is somehow low when compared to the high inflation rate currently run by the country
• Currently, MTNN have a very low Book Value compared to its current market price. We have estimated its Book Value at N13.02 versus N8.76 in the prior financial year
• See below for other investment ratios

First Quarter-2022 Investment Ratios

• In the first quarter of 2022, the management of MTN already earned N4.76 which is 31.28% above the corresponding quarter earnings. In our opinion, this is a good take off by the giant telecommunication company
• As at the time the result was made available to the investing public, the price of MTNN on the floor of the exchange can replicate the EPS 11.25 times, that is; the P/E-Ratio is 11.25x against 12.07x in the corresponding quarter
• The said earnings is a yield of 2.22% of the current market price of MTNN, this is a slight improvement over the 2.07% yield achieved in the corresponding quarter of 2021
• Please understand that currently, MTNN’s Book Value is estimated at N17.54 against N12.39 in the similar quarter in 2021
• Revealing a seemingly overpriced state is the Price to Book Value that stood well above unity
• See the below table for details

Valuation

• Our blend of valuation tools fairly valued each unit of MTNN shares for 78, please note that this is not too far from the current market valuation of MTNN shares, thus, we rated MTNN a Hold.