Localization Progress In Uganda And Ghana Will Unlock Future Earnings

Key Takeaways

• Strong growth in data and fintech services could positively impact MTN's revenue and boost net margins through high-margin products.
  
• Efforts to manage debt and enhance network resilience may improve earnings resilience, service quality, and customer retention, driving future growth.
  
• Currency devaluation, regulatory challenges, and increased operating expenses are negatively impacting MTN Group's revenue growth, net margins, and financial flexibility.

Catalysts

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

• Strong commercial momentum is expected to drive future growth, with service revenue from data growing at 21% and fintech at 27%. This could positively impact MTN's revenue.
  
• The expansion of the fintech ecosystem, particularly advanced services like payments and remittances, grew 58% year-on-year, suggesting potential for increased net margins through higher-margin products.
  
• Strategic initiatives such as localization in Uganda and Ghana have progressed well, potentially unlocking future earnings and improving net margins through regulatory compliance.
  
• Significant efforts to reduce dollar-denominated debt, especially in the Holdco balance sheet, to mitigate forex losses, can enhance earnings resilience and potentially improve MTN’s net margins.
  
• Continued investment in network resilience and capacity in South Africa should bolster service quality and customer retention, potentially leading to growth in revenue and net margins over time.

MTN Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MTN Group's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.7% today to 12.6% in 3 years time.
• Analysts expect earnings to reach ZAR 31.5 billion (and earnings per share of ZAR 12.11) by about February 2028, up from ZAR -7.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, up from -28.0x today. This future PE is lower than the current PE for the ZA Wireless Telecom industry at 15.8x.
• 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 15.94%, as per the Simply Wall St company report.

MTN Group Future Earnings Per Share Growth

Risks

• The significant and sharp devaluation of the naira and other currencies could impact MTN Group's reported earnings and compress revenue growth, potentially harming net margins.
  
• The ongoing conflict in Sudan poses risks to MTN's revenue streams and has led to an impairment of assets, affecting overall earnings.
  
• The increased operating expenses, particularly network expenses in Nigeria, driven by economic factors like naira devaluation and VAT introduction on tower leases, could negatively impact MTN's net margins.
  
• Challenges in cash upstreaming from Nigeria and regulations around minimum tax might constrain free cash flow and liquidity, affecting MTN's financial flexibility.
  
• Regulatory challenges and competition in various markets, like Ivory Coast and Rwanda, may hinder revenue growth and expansion, impacting MTN's future earnings potential.

Valuation

• The analysts have a consensus price target of ZAR115.0 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 ZAR140.0, 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 ZAR249.3 billion, earnings will come to ZAR31.5 billion, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 15.9%.
  
• Given the current share price of ZAR115.43, the analyst price target of ZAR115.0 is 0.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.