Fintech Expansion And Cost Efficiencies Will Strengthen African Telecom Prospects

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AnalystConsensusTarget
Consensus Narrative from 9 Analysts
Published
09 Feb 25
Updated
31 Jul 25
AnalystConsensusTarget's Fair Value
R153.78
0.2% overvalued intrinsic discount
31 Jul
R154.04
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1Y
111.9%
7D
5.6%

Author's Valuation

R153.8

0.2% overvalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Increased 17%

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

About MTN Group
    Provides mobile telecommunications services in South Africa, Nigeria, South and East Africa, West and Central Africa, and the Middle East and North Africa.
What are the underlying business or industry changes driving this perspective?
  • 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 Earnings and Revenue Growth

MTN Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming MTN Group's revenue will grow by 12.5% annually over the next 3 years.
  • Analysts assume that profit margins will increase from -5.1% today to 11.6% in 3 years time.
  • Analysts expect earnings to reach ZAR 31.2 billion (and earnings per share of ZAR 18.27) by about July 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 14.1x on those 2028 earnings, up from -27.3x today. This future PE is lower than the current PE for the ZA Wireless Telecom industry at 16.2x.
  • 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 16.45%, as per the Simply Wall St company report.

MTN Group Future Earnings Per Share Growth

MTN Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • 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

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of ZAR153.778 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 ZAR220.0, 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 ZAR268.5 billion, earnings will come to ZAR31.2 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 16.4%.
  • Given the current share price of ZAR145.2, the analyst price target of ZAR153.78 is 5.6% higher. 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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