MTN, a leading telecommunications company in Africa, is presenting a compelling investment opportunity, according to Victor Mupunga, head of research at Old Mutual Wealth Private Clients. Despite facing several macroeconomic challenges, MTN’s current valuation suggests it is well-positioned to benefit from economic growth across the continent.
The company recently released its financial results for the first half of 2024, revealing a mixed performance. While MTN’s South African operations showed growth, its Nigerian business experienced a significant downturn. The telecom giant reported a 20.8% decline in group service revenue, largely due to a staggering 52.9% drop in revenue from Nigeria. In contrast, service revenue in South Africa grew by 3.3%.
MTN’s earnings before interest, taxes, depreciation, and amortization (EBITDA) in South Africa increased by 4.3%. However, the decline in Nigeria led to an overall group EBITDA drop of 41.2%. The company also reported a total subscriber growth of 0.8%, reaching 288 million customers, with active data subscribers increasing by 9.2% to 150.2 million.
Mupunga described the results as weak, especially given MTN’s scale and dominant market position in many African countries. However, he noted that the operational performance, when adjusted for constant currency, remained stable, with an EBITDA margin of 39.2%. This suggests that MTN is still capable of delivering solid returns once the macroeconomic challenges ease.
Key metrics indicating MTN’s commercial momentum include a 9% increase in active data subscribers and a 17% rise in fintech transaction volumes, which reached 9.7 billion. The strong performance in markets like Ghana and Uganda is becoming increasingly important, as these countries are expected to contribute more significantly to profits, reducing MTN’s reliance on Nigeria. Mupunga anticipates that Ghana will surpass Nigeria in profit contributions in 2024 and 2025, driven by a 20.4% increase in EBITDA.
During the reporting period, MTN was able to remit R6.7 billion to the group, which included a previously delayed dividend from Nigeria. This indicates early signs of stabilization in accessing foreign currency within the country.
Mupunga pointed out that MTN’s recent share price weakness means the company is trading below Old Mutual Wealth’s estimated fair value. He believes that MTN is well-positioned to capitalize on strong economic growth across Africa and the shift from voice to data services.
The management team has also improved the company’s balance sheet over the past few years, demonstrating their ability to navigate changing regulations and evolving consumer preferences. Mupunga expects MTN to benefit significantly from its expanding fintech services, particularly in Nigeria, where the company recently received a license to provide banking payment services.
With improved network resilience in South Africa and the absence of load-shedding, MTN is becoming more competitive in the local market. Mupunga remains optimistic about MTN’s future, stating that the company is well-positioned to benefit from increasing connectivity across the continent.
Despite the current challenges, Old Mutual Wealth’s investment case for MTN remains strong, as the company continues to trade below its fair value estimate. As MTN navigates these turbulent times, its focus on operational performance and strategic growth initiatives positions it for potential recovery and success in the future.
