MTN Nigeria: Living on a prayer

MTN Nigeria is sandwiched between soaring costs and slowing topline growth

In 1986, rockband Bon Jovi dropped their single Living on a Prayer. 

It tells the tale of Tommy and Gina, a working class couple who struggle to make ends meet and vow to "hold on to what we've got."

It would also go on to become an extremely successful song for the band.

MTN Nigeria also seem to be in the same space. Gbas Gbos left and right. 

Gbas from the shock devaluation which has led to record mega losses. 

Gbos ensuing from the spike in inflation and jump in operating costs. 

A much overdue increase in tariffs has been still on still. It came up on both companies earnings calls.

Initial plan was to write a piece on both, but i opted to separate. It seemed a bit too lengthy.

MTN Nigeria CEO Karl Toriola in response to a question on a tariff increase on the 9M 2024 call

I think you have probably read in your news alerts that I have been quite vocal in saying that we cannot continue in this construct for this industry. The government has been under a lot of heat in terms of inflation and gradual phase-out of the subsidies, as Mr. President committed on his first day of swearing-in, and that heat, of course, has impacted the consumers. So, there's been a bit of caution in that space by the government authorities. What is 100% clear to them is that a tariff increase is needed; there's no dispute around that at this point in time, and the sustainability of the industry is under threat. I think that's crystal clear to everyone who is relevant in the government ecosystem.

9M 2024 numbers 

Revenue rose by 33.7% from N1.7 trillion in 2023 to N2.3 trillion in 2024. 

Key earners were data at N1.1 trillion and voice at N949 billion.

One may argue, thats huge. How many businesses in Nigeria earn that? True

The weak point is cost of sales grew at a much faster pace. Those rose by 74.6% from N865 billion in 2023 to N1.5 trillion in 2024. 

You're left with EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) of N860 billion

Deduct 

• Net finance costs of N284 billion (Up 98.5% from the previous year).

•  FX loss of N904 billion (Up 90.8% from the previous year).

• Tax N198.7 billion.

Final figure? a N514 billion loss. 

Mobile and data subscriber growth is weak. 

Mobile subscribers dropped by 0.9% to 77 million (likely to NIN linking policy)

Data subscribers went up by 5.1% to 45.3 million. Airtel Africa tends to be a bit more granular on data. Thats something MTN can improve.

Costs are heavy. FX is sliding. The rational thing to do at that point is to increase prices to compensate for that. 

Management has switched some of their running costs (base towers and the like). 

It still does not solve the fact that they operate in a country where inflation has been dancing around 15% (before the current spike) for the last few years. Costs very likely will be in Naira going forward but still be elevated. 

If they aren't growing revenue or profit at or around that pace, then the business isnt doing so well. 

Dont expect a dividend 

Like every other firm hit hard by the devaluation and ensuing losses, dont expect a dividend. The company has negative retained earnings. Think of that as an empty purse. 

That's tough on shareholders who a few years ago would get an interim dividend and a final dividend

Potential bright spots

While they are tiny in terms of overall earnings, Fintech and Digital revenue are growing at a healthy space.

A few months ago, the firm bought back the minority stake in its MOMO PSB and there were reports it will be applying for a few more licences. 

In the mid term though, the key drivers of revenue will be voice and data.

 If you have no price increase (and mid teens inflation and cost), this firm and other telcos will struggle. My sense is that a price increase will be approved sometime in FY 2025 or FY 2026. 

Till then, the stock very likely will trade at its current range.