Business21.01.2025

MTN offers great value

MyWealth Investments CEO Annatjie van Rooyen says that MTN share price offers great value at its current levels thanks to a swell in positive developments surrounding the company.

Van Rooyen recently told Business Day TV that MTN does well when there is positive news around the oil price, adding that she hoped demand from China for the commodity would increase.

However, that was only a small part of the good news for MTN, she said.

“I’m expecting broker and earnings upgrades for the company,” said Van Rooyen.

“This is on the back of USSD platform revenues that will be back-paid by the banks in Nigeria and the revenue that will be received from those platforms in future.”

She also said the possibility of tariff hikes in Nigeria bodes well for MTN’s revenue.

“The forward price-earnings ratio of over 9 — I think it offers great value at these levels still,” she said.

It should be noted that Nigeria’s regulator agreed to a 50% tariff hike yesterday — half of what operators asked for. It is the first time in 12 years the country has allowed telecommunications providers to increase tariffs.

MTN’s share price has suffered in recent years. The company experienced a particularly torrid start to 2024, as its share price plummeted by 28% due to the collapse of the Nigerian Naira.

Nigeria is MTN’s biggest market and the one where it makes a large chunk of its money. In the 2022 financial year, Nigeria contributed 40% to MTN’s total service revenue.

The country is even more important to MTN’s bottom line. MTN Nigeria contributed 46% to the operator’s earnings before interest, taxes, depreciation, and amortization (EBITDA).

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

Over the years, Nigeria has been a troublesome region for MTN investors who have endured big swings in the share price.

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

This ended abruptly in late 2015 after the Nigerian Communications Commission (NCC) handed MTN a $5.2 billion fine for non-compliance with SIM registration regulations.

MTN negotiated the fine down to $1.7 billion, but it was still significant for the South African operator.

Between 2015 and 2023, there were many further fines and disputes between MTN and Nigerian authorities, which hurt the company.

Its most recent beating came from the rapid decline in the value of the local currency, the Nigerian Naira, although MTN assured that this would be short-term pain for long-term gain.

MTN’s share price from 2020 to 2025

To understand the situation, it is valuable to delve deeper into the Naira’s problems.

Nigeria has historically struggled to increase the liquidity of the Naira. It has not been easy to sell the Naira at its listed exchange rate value.

The low interest in the Naira has a few different dynamics. The Nigerian central bank pegged the currency to the US dollar to strengthen the Naira.

This move kept the Naira artificially inflated as its price was not determined by market forces but by a predetermined rate that constantly had to be managed.

Because the Naira’s value is artificially inflated, outside investors have little confidence in buying the currency at its official “predetermined” valuation.

A result was that many more individuals and businesses wanted to sell their Naira than those who wanted to buy Naira.

The lack of demand for the Naira means that Nigeria’s central bank cannot allow all the Naira sellers to act on their wishes and sell their currency.

This is because it must keep the Naira at a predetermined rate. Excessive selling of the currency would cause that rate to drop significantly. This is what causes the low liquidity.

This dilemma created a secondary black market for the Naira where it could be bought and sold informally at a much weaker rate than was market-determined.

The black-market rate is typically the exchange rate used within Nigeria between its citizens. However, foreign investors and businesses must pay the official exchange rate.

The black-market rate is known by investors, further lowering their confidence in the Naira.

Naira/Rand exchange rate from 2016 to 2025

In June 2023, Nigeria lifted the US dollar peg, and the Naira was allowed to trade freely.

However, government-regulated and multinational corporate transactions still had to be done at an official exchange rate.

The official Naira exchange rate lost 27% of its value overnight.

At the end of January 2024, the Naira experienced another extreme currency devaluation, where it fell by 40% relative to the US dollar in a single day.

This was due to the central bank revaluing the official exchange rate, bringing it closer to the black market rate.

MTN was a victim of the rapid currency devaluation and poor liquidity. In its 2023 Q3 trading update, it said the availability of foreign exchange has been constrained in Nigeria.

The company also stated that the previous official currency devaluation had a material impact on its results.

The Naira’s devaluation following that financial report was much more severe. As such, it put significant pressure on MTN’s finances, impacting its share price.

The recent positive news out of Nigeria bodes well for MTN’s future financial performance, which is being reflected in its share price.

Since last week, MTN’s stock has shot up from around R88 to over R104 per share.

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