Rising Starlink Competition And Regulation Will Erode Telecom Margins

Key Takeaways

• Disruptive technologies, regulatory pressures, and fierce competition threaten to erode MTN's revenue base and squeeze profit margins across major markets.
  
• Persistent currency risk and high capital expenditure requirements constrain free cash flow, limit shareholder returns, and undermine long-term financial flexibility.
  
• Accelerated digital adoption, macro stability, cost discipline, and fintech expansion are driving sustained earnings growth, margin improvement, and diversified revenue streams for MTN Group.

Catalysts

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

• The increasing risk of new disruptive technologies, such as satellite internet providers like Starlink, threatens to erode MTN's subscriber base in both urban and especially underserved rural areas, undermining future revenue growth and rendering significant segments of MTN's existing infrastructure obsolete over the long term.
  
• Persistent and escalating regulatory risks, including tightening data privacy laws and stricter digital payments compliance requirements across African and international markets, will materially increase MTN's ongoing compliance costs and expose the company to substantial potential fines, directly squeezing net margins and limiting bottom line earnings growth.
  
• Intensifying price competition among African telecom operators, particularly in South Africa's highly contested prepaid market, is likely to drive down average revenue per user and force MTN to sacrifice margins through increased distribution commissions and customer acquisition costs, putting sustainable pressure on revenue and EBITDA margins in its largest markets.
  
• Currency devaluation risk remains entrenched across key MTN markets like Nigeria despite recent stabilization, meaning any renewed volatility will quickly compress reported US dollar revenues and erode profits, regardless of operational improvement, thereby undermining group-wide earnings reliability and return on equity.
  
• Continuous need for elevated capital expenditure to address quality of service obligations, maintain network relevance, and handle regulatory demands in fragmented, high-risk jurisdictions will keep free cash flow generation under strain, limit shareholder returns through potential dividend constraints, and delay the deleveraging efforts that underpin MTN's long-term financial flexibility.

MTN Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on MTN Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming MTN Group's revenue will grow by 9.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 3.6% today to 12.9% in 3 years time.
• The bearish analysts expect earnings to reach ZAR 35.2 billion (and earnings per share of ZAR 18.56) by about August 2028, up from ZAR 7.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.1x on those 2028 earnings, down from 38.1x today. This future PE is lower than the current PE for the ZA Wireless Telecom industry at 27.1x.
• Analysts expect the number of shares outstanding to grow by 1.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.74%, as per the Simply Wall St company report.

MTN Group Future Earnings Per Share Growth

Risks

• The accelerating adoption of digital services, data, and fintech solutions across Africa has led to strong double-digit growth in MTN's key financial metrics, suggesting a long-term secular trend toward higher revenues and earnings for telecom operators that can capture this momentum.
  
• Improved macroeconomic stability in MTN's largest markets, such as Nigeria and Ghana, along with easing inflation and stable exchange rates, has resulted in significant margin expansion and robust free cash flow generation, bolstering net margins and improving the group's financial resilience.
  
• Ongoing execution of disciplined cost management, network modernization (including selective 5G rollout and FTTH), and infrastructure efficiency initiatives has already produced billions in savings and is expected to further reduce capital intensity, supporting expanding EBITDA margins and sustained earnings growth.
  
• The rapid growth and scaling of MTN MoMo (Mobile Money) and broader fintech platforms-particularly in underpenetrated markets and through advanced digital banking products-continues to diversify and strengthen non-voice service revenue streams, potentially lifting overall group revenues and net profitability.
  
• Strategic reviews have reaffirmed MTN's commitment to expansion in large addressable markets, with leadership convinced that demographic trends, rising demand for data, and leadership position across multiple markets will drive above-inflation revenue growth and elevated returns on equity over the medium to long term.

Valuation

• The assumed bearish price target for MTN Group is ZAR83.03, which represents two standard deviations below the consensus price target of ZAR164.11. This valuation is based on what can be assumed as the expectations of MTN Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ZAR220.0, and the most bearish reporting a price target of just ZAR73.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ZAR273.5 billion, earnings will come to ZAR35.2 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 16.7%.
  
• Given the current share price of ZAR157.12, the bearish analyst price target of ZAR83.03 is 89.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.