Legend Internet Plc – Profitability Amid Growth Investments

Legend Internet Plc – Profitability Amid Growth Investments.

Legend Internet Plc has demonstrated stable top-line growth and expanding market presence in Nigeria’s digital broadband space. While revenue has seen moderate growth (Q2 revenue: ₦319.9m vs. ₦313m YoY), the company’s bottom line has significantly compressed due to a sharp increase in operating expenses tied to strategic investments. Despite reduced net earnings (₦32.9m in Q2 2025 vs. ₦72.1m in Q2 2024), Legend retains a strong gross profit base, positioning it well for future scalability. However, investors should be cautious of cost overruns and operational inefficiencies in the near term.

Catalysts

• Product Expansion: Growth in wholesale bandwidth revenue (₦12.6m vs. ₦4.4m YoY) signals rising B2B demand and room for margin improvement.
• Industry Tailwinds: Nigeria’s expanding internet penetration and rising demand for high-speed broadband provide a favorable backdrop.
• Recurring Revenue: Legend’s subscription-based model (₦300m in 3 months) provides stable cash flow, accounting for over 93% of Q2 turnover.

Assumptions

• Revenue Outlook: Projecting a 10% CAGR, revenue could reach ₦1.8–2.0 billion by 2030, driven by wholesale contracts, customer base expansion, and up-selling new services.
• Earnings Outlook: Assuming better cost control and capex tapering post-infrastructure rollout, net profit could grow at 12–15% CAGR, reaching ₦200–250 million annually within five years.

Risks

• Execution Risk: Rising operating costs (Admin: ₦62.1m vs. ₦18.8m; SG&A: ₦122.6m vs. ₦46.4m YoY) and consultancy fees may not translate to proportional earnings growth.
• Competitive Pressure: Market share risks from larger ISPs like MTN, Airtel, or Starlink could limit pricing power.
• Regulatory Hurdles: Potential spectrum licensing changes or policy shifts could affect operations or bandwidth costs.

Valuation Outlook

• 3-Year Outlook: Business likely to operate at tighter margins due to expansion-related costs, with EBITDA margin of ~20–25%.
• 5–10 Year Outlook: With economies of scale and network maturity, margins could expand back to 30%+.
• Valuation Multiple: Currently low profitability limits high multiples, but over 5 years, a 10–12x P/E could be justified if margin improvement materializes.

Strengths

• Stable recurring subscription revenue.
• Growth in high-margin wholesale services.
• Solid gross margin profile (~67% in Q2 2025).

Weaknesses

• Profit compression from soaring opex and consultancy costs.
• Rising employee and admin costs limit scalability in short-term.
• Weak net margins (only ~10% of revenue in Q2 2025).

While Legend Internet Plc shows promise in a fast-growing sector with reliable cash flows, rising costs and margin erosion pose short-term risks. Hold the stock if already invested, and look for margin improvement and cost stabilization as buy triggers. New investors should wait for consistent profit growth and signs of cost optimization before entry.