MTN’s share rally could continue, say analysts
Market is pleased to see that MTN’s debt at the holding company level has fallen dramatically
MTN’s shares are at their best level since Nigeria’s central bank dropped a bombshell on the mobile operator in August 2018 – and analysts say the stock could climb further.
The share has risen 23,7%, to R94.09, since its close on March 6, the day before MTN published its results and eased investor concerns with a set of bullish targets and numbers which showed debt was under control.
In late August 2018, Nigeria’s central bank demanded that MTN return $8.1bn worth of dividends. That, together with a separate claim from Nigeria’s attorney-general, which said the operator owed $2bn in taxes, sent the share crashing from R107.34 to below R70.
MTN’s announcement in December that the $8.1bn demand had been slashed to $53m did little to reignite the share price, but positive sentiment returned last week despite mediocre earnings.
Mergence Investment Managers portfolio manager Peter Takaendesa said SA fund managers had sold down their exposure to MTN, which was also heavily sold by foreigners.
But now locals are topping up their positions and foreigners had stopped selling, he said.
The market was pleased to see that MTN’s debt at the holding company level had fallen dramatically. And maintaining the full-year dividend at R5 a share – when some had expected a cut – "showed confidence", Takaendesa said.
MTN aims to grow the dividend by 10% to 20% a year.
Imtiaz Suliman, portfolio manager at Sentio Capital, agreed that debt was no longer a concern, particularly since MTN plans to sell R15bn in assets over the next three years and could get another R23bn from its investment in tower firm IHS.
"So given the asset sales and free cash flow generation, it looks like that dividend is secure," Suliman said.
MTN said last week it had also raised its medium-term target for service revenue growth to "double digits", and that adjusted return on equity should improve from 11.5% in 2018 to above 20% over time.
"And the good thing is they’ve got skin in the game now, because this has been put into their executive remuneration," Takaendesa said. "So they’ll feel pain in their pockets if they don’t deliver – that gave the market more confidence."
Takaendesa said MTN’s shares should be trading at above R100 "despite all the noise".
With the share still below that level, the market was placing the Nigerian business at a discount to fair value of more than 50%, while the Iranian business was essentially valued at zero.
Completely ignoring Iran was probably fair, Takaendesa said, "because the currency is completely devalued, so it’s not a meaningful contributor to MTN anymore, and they probably won’t get much cash out of there for a while because of US sanctions".
Takaendesa said the share could lift to R110, at which point some investors might lock in profits by selling.
Meanwhile, Suliman said investors were also relieved that traditional voice revenues were still expected to grow in most of MTN’s markets.
"I think there could be more upside for the share," he said. MTN was still trading at a slight discount to its emerging-market peers.
"It doesn’t come without any risk, but investors are a bit calmer regarding pressures on the dividend and the balance sheet," Suliman said.