Why MTN’s share price is suffering

MTN’s share price is down 28.5% since the start of the year after Nigeria announced changes to how its currency, the Naira, may be exchanged.

While MTN is the second-biggest mobile network in South Africa, its Nigerian operations typically puts its group revenue and profits far ahead of Vodacom, South Africa’s biggest mobile network.

Nigeria contributed around 40% of MTN’s service revenue and 46% of earnings before interest, tax, depreciation, and amortisation in 2022.

This explains why MTN remains committed to Nigeria despite the country’s numerous economic and political challenges.

It also isn’t the first time Nigeria has caused wild swings in MTN’s share price.

From 2014 to 2015, MTN’s share price traded between R200 and R250 and the company was doing well.

However, this came to a screeching halt in late 2015 when the Nigerian Communications Commission slapped MTN with a 1.04 trillion naira fine (then around R73 billion) for non-compliance with SIM registration regulations.

MTN negotiated the fine down to a 330 billion naira settlement over three years — which was then around R24.8 billion.

Although much less than the original fine, it was still significant.

There were several other fines and disputes between MTN and the Nigerian authorities between 2015 and 2024.

Most recently, the Nigerian Tax Appeal Tribunal slapped it with a R1.39 billion back-tax bill. MTN is disputing the matter.

However, MTN’s current pain has more to do with foreign exchange than foreign regulators trying to squeeze South African companies for money.

Until June 2023, Nigeria had kept the Naira’s exchange rate to the US dollar artificially pegged to a specific value.

This created a liquidity problem for those wishing to sell nairas — like MTN.

The Nigerian central bank strictly controlled trading to ensure the Naira kept its peg against the US dollar, which effectively meant there wasn’t more selling than buying.

Unfortunately, this had the effect of lowering investor confidence in the currency and increasing selling demand.

Naturally, a black market emerged to alleviate the liquidity crunch. This allowed people to more readily exchange their nairas for dollars — but at a much lower rate.

However, this option is not available to legitimate businesses, which had no choice but to sell nairas through the central bank.

Of course, investors know the black market rate, further lowering investor confidence in the currency.

While the Nigerian government officially lifted the naira-dollar peg in June 2023, multinational corporations still had to use the official exchange rate.

Authorities more regularly revalued the Naira to match movements in the open market, but companies like MTN were still forced to trade at a disadvantage.

MTN became a victim of this rapid currency devaluation and poor liquidity, with its headline earnings taking a massive hit.

Asked whether MTN’s circumstances would change anytime soon, FNB Wealth and Investments portfolio manager Wayne McCurrie said, “You just don’t know.”

Speaking to BusinessDay TV’s Stock Watch, McCurrie said that although the share was cheap, there was also huge risk.

“We just don’t know what’s going to happen next week in Nigeria,” he said.

“Is there some new fine they’re going to come up with? Will the latest currency stories actually hold? What do you just not know?”

McCurrie explained that MTN can only borrow in dollars, because there’s no market in local African currencies for the kinds of sums it needs.

“So you borrow in dollars, your [capital expenditure] is in dollars, and then you earn in a massively depreciating currency to repay all those loans you took out to buy the capex — and the capex is huge,” he said.

“Unless things truly come right in Nigeria and the country’s managed properly and the forex is managed properly and/or the oil price goes to $120, I wouldn’t buy MTN.”