Fintech Expansion And Cost Efficiencies Will Strengthen African Telecom Prospects

Key Takeaways

• Strong data and Fintech growth positions MTN to enhance service revenue and net margins in Africa's expanding market.
  
• Strategic focus on key markets and efficiency programs should streamline operations and boost profitability.
  
• Currency depreciation, geopolitical instability, and regulatory challenges threaten MTN Group's earnings, revenue growth, and financial stability across key markets.

Catalysts

Provides mobile telecommunications services in South Africa, Nigeria, South and East Africa, West and Central Africa, and the Middle East and North Africa.

• MTN Group's data services are experiencing strong growth, with data revenue expanding by 21.9%. This signals a continued demand for data services in Africa, suggesting upward pressure on service revenue as data traffic and usage grow.
  
• The Fintech business is showing higher-quality growth, with service revenue increasing by 28.5%. As this segment expands, it is likely to positively impact net margins due to Fintech's typically higher margins compared to traditional telecom services.
  
• Strategic localization in key markets like Uganda and Ghana, and successful exits from less strategic markets, should streamline operations and enhance profitability, potentially bolstering net earnings through a more focused business model.
  
• Ongoing expense efficiency programs have realized significant savings and are expected to further improve operating margins. Containing costs effectively while maintaining service quality can enhance MTN's net margins over the coming periods.
  
• Expected tariff hikes in Nigeria should boost service revenue, as MTN implements these strategically while considering competitive dynamics. A stable macroeconomic environment and reduced currency volatility are expected to sustain or enhance earnings from this key market.

MTN Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MTN Group's revenue will grow by 11.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.1% today to 10.3% in 3 years time.
• Analysts expect earnings to reach ZAR 27.0 billion (and earnings per share of ZAR 16.9) by about April 2028, up from ZAR -9.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, up from -21.1x today. This future PE is lower than the current PE for the ZA Wireless Telecom industry at 16.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.6%, as per the Simply Wall St company report.

MTN Group Future Earnings Per Share Growth

Risks

• The sharp devaluation of the naira in Nigeria had a significant negative impact on reported earnings, potentially affecting MTN Group's revenue in its largest market. Currency volatility remains a risk to financial stability and earnings.
  
• The ongoing conflict in Sudan and its resultant operational challenges, coupled with hyperinflation, have led to significant impairments and losses, impacting overall margins and net income.
  
• The dependence on external financing and upcoming Eurobond maturity in 2026 present liquidity risks that may affect MTN's debt profile and interest costs, influencing net margins.
  
• The competitive and regulatory landscape in Nigeria, especially concerning MoMo PSB's limited success and constraints due to the PSB license, could impede fintech expansion and revenue growth.
  
• Execution risks associated with South Africa's prepaid market recovery and its impact on MTN's revenue growth, along with the potential inefficiencies in CapEx deployment, could challenge achieving anticipated earnings growth.

Valuation

• The analysts have a consensus price target of ZAR131.273 for MTN Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR205.0, and the most bearish reporting a price target of just ZAR73.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ZAR261.3 billion, earnings will come to ZAR27.0 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 16.6%.
• Given the current share price of ZAR111.97, the analyst price target of ZAR131.27 is 14.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.