Analyst recommendation

                                                                                                           As at 11 March 2025

Executive Summary

Top line met management expectations; but cost inflation was elevated in this period from various Opcos weighing in on margins which were impacted by currency volatility and conflict in Sudan.
o Blended inflation averaged 14.5% in 2024 compared to 16.7% in 2023.
o Group EBITDA decreased by 33.5%. The EBITDA margin declined by 8.9 percentage points (pp) to 32.0%
• The balance sheet remains strong, with Group net debt/EBITDA at the holding company (Holdco) level steady at 0.7x as of 31 December 2024, compared to 0.4x on 31 December 2023.
o Up streamed cash of R14.0 billion from MTN operating companies compared to R 13.4 billion FY23.
o Despite encountering challenges, MTN maintains a strong liquidity position of R39.1 billion as of 31 December 2024, down from R50.1 billion in December 2023.
o The board declared a dividend of 345 cents per share for FY24 which is a 4.5% increase from FY23.
o MTN has successfully concluded the sale of MTN Guinea-Bissau and MTN Guinea-Conakry. The exit was driven by low market scale, profitability challenges and currency risks.
• Intrinsic value of R111.
a. The intrinsic value saw a 21% increase from the previous intrinsic value, driven by MTN's 50% tariff adjustment hike, successful renegotiation of tower leases, and a reduction in USD exposure.
b. Our bull case is still supported by the inherent valuation in the Fintech business, and we saw a glimpse of that in the recent Mastercard offer.

Analyst thesis

The current price is discounting no value for MTN Nigeria (R27 of the R111 IV), previously was R18 resulting in our positive view on the asymmetric upside. Indeed, most of the WECA valuation is ignored by the market too.
• MTN's 50% tariff increase aims to protect its profit margins but may also lead to lower consumer spending. To sustain long-term growth and retain subscribers, MTN must carefully balance pricing with affordability to avoid significant customer losses.
• Due to the sharp devaluation of the naira, this ultimately results in a higher cost of doing business which affects the entire business model and makes it harder to drive margin recovery.
• Even though Nigeria offers potential advantages, the uncertainty or risk remains high, and there's no known trigger at this moment that would alleviate that risk perception.
• The asset realisation process needs to continue which should streamline the portfolio, reduce debt and risk, and enhance returns.
• A significant risk remains MTN’s material exposure to forex. The sum of the parts (SOTP) valuation shows that 23% of the exposure comes from South Africa, and the rest is volatile currencies and inflation exposure

Results

 In 2024, group service revenue decreased by 15.4% driven by currency devaluation and inflation. Recovery is expected as tariffs adjust.
• Group EBITDA decreased by 33.5%; up by 10.2% on a constant currency.
• Group EBITDA Margin decreased by (8.9pp) to 32.0%

Valuation

Table 3: Valuation

 

Source: FactSet