Battle of the telecommunications giants

Comparing Vodacom and MTN’s financial results revealed that Vodacom offers a far more stable performance with more predictable revenue and earnings growth.

On Monday, MTN released its results for the first six months of 2024, which revealed growth in its South African operations but a major downturn in its Nigerian business.

Group revenue declined from R108 billion to R85 billion, a direct result of revenue from Nigeria declining from R44 billion to R21 billion.

The lower group revenue resulted in EBITDA (earnings before interest, taxes, depreciation, and amortization) dropping from R49 billion to R29 billion.

The problems in Nigeria mean that MTN posted its first loss since 2016. It reported a loss of R7.39 billion for the six months, compared with a profit of R4.14 billion a year earlier.

MTN CEO Ralph Mupita said that although the commercial momentum and strategy execution were solid, macro headwinds impacted their results.

“The sharp devaluation of the naira over the period had the most significant impact on reported results,” he said.

If its Nigerian issues are set aside, there were many positives for MTN. In constant currency, data service revenue increased by 21%, and fintech service revenue climbed by 27%.

MTN made good progress to increase local ownership of MTN Ghana and MTN Uganda, with gross proceeds of R1.7 billion.

It also completed the orderly exit of operations in Afghanistan and Guinea-Bissau as part of portfolio optimization.

At the end of June 2024, MTN had 288 million subscribers across 18 markets. Of these, 150 million were active data subscribers.

MTN reconfirmed its medium-term guidance and anticipated paying a full-year dividend of 330 cents per share for the 2024 financial year.

The market took a positive view of MTN’s results and prospects. The share price increased 2% on the day and is up 21% over the past month.

Vodacom versus MTN

Many investors who want to invest in a South African telecommunications company typically choose between Vodacom and MTN.

Both companies have strong operations in South Africa and across the continent. However, their financial performances are very different.

MTN’s exposure to Nigeria, an unstable market in many respects, greatly influences its financial results.

Its challenges range from regulatory and tax issues, which typically result in huge fines, to the country’s unstable currency.

MTN’s revenue decline and loss were caused by a significant naira devaluation in February — the naira lost approximately 65% of its value relative to the dollar.

This caused Nigeria, MTN’s largest geographic revenue generator, to generate 53% less revenue than in the previous period.

Vodacom, which has traditionally relied on its South African operations for most revenue and profit growth, is far more stable.

Even with the addition of Safaricom and Vodafone Egypt, Vodacom has continued to produce steady returns for shareholders.

Both telecommunications companies have produced strong revenue growth over the last fifteen years. However, Vodacom’s growth has been more predictable and stable than MTN’s.

MTN’s volatility indicates a greater risk in revenue generation. This should be expected because it operates in higher-risk regions.

The chart below shows MTN and Vodacom’s interim revenue over the last fifteen years.

Vodacom versus MTN profits

When MTN’s net income is compared with Vodacom’s since 2009, much greater volatility can be seen in MTN’s profits.

This served MTN well up until 2015. However, since 2016, Vodacom has outperformed MTN with much more stable profitability.

This speaks to greater cost management and less exposure to foreign currency risks at Vodacom.

As mentioned, MTN has fallen victim to major fines and government exchange rate interventions in Nigeria, creating significant investment uncertainty.

This is one of the major reasons why MTN’s share price has halved over the last two years.

The chart below shows Vodacom’s stable net income versus MTN’s volatile net income over the last fifteen years.