MTN’s annual earnings report is expected to show how it is coping with currency changes in Nigeria, where the naira’s devaluation has wiped out billions of rand in earnings and cash flow, all while its tower partner is working to isolate it from other shareholders over governance concerns.
Africa’s largest mobile operator has had a tumultuous relationship with its largest operation for years, exemplified by an infamous $5.2bn tax matter in 2015. MTN is the largest mobile provider in Nigeria with 77.6-million customers by September 2023, comprising a third of the group’s earnings.
MTN’s share price has been in decline after reaching a five-year high of R208.80 in March 2022. Since then, the stock has lost more than half of its value to trade at R91 now. This is despite the group continuing to grow subscribers, growing new revenue lines, unlocking value in fintech and exiting risky markets, among a list of items that the group has executed on to improve performance.
Much of the decline has been attributed to the group’s Nigerian business. Like many other countries, Nigeria has had its economy battered by rising living costs, especially of fuel, which have reduced disposable incomes for consumers. This has been made worse by the change in the country’s currency regime.
In its earnings report for the third quarter to September 2023, MTN highlighted that the naira devaluation had a “material impact on our results, particularly in Q3”.
At the half-year, MTN Nigeria CEO Karl Toriola said: “The outlook for the 2023 full-year will largely depend on the impacts of the levels of the exchange rate and the new VAT on tower leases effective September 2023. The extent of these factors remains the key nearer-term risk to our medium-term guidance.”
Nigeria’s new forex policy, announced in June, is a big departure from the previous regime, which was characterised by multiple exchange rates and tight government controls. Under the new policy, the value of the naira is determined by market forces, rather than by the central bank. This means that the local currency is now free-floating, and its value can fluctuate based on supply and demand.
Nicholas Dakin, global portfolio manager at Sasfin Wealth, said MTN Nigeria “presents a material foreign exchange and regulatory risk to the company’s earnings mainly due to the Naira’s devaluation — down about 50% this year after the central bank noted that liquidity has not been improving”.
As a result, “MTN’s share price has declined sharply since the beginning of 2022 and is trading where it was five years ago.”
Lost value
Over the last 12 months, MTN shares have lost almost 37% of its value. Sector peers Vodacom and Telkom have also not done during the period. Vodacom is down 27.16% and Telkom is 23.48% lower.
Despite MTN’s efforts to boost performance, Unum Capital trader Luke Holland said the losses in shareholder value have triggered investor scepticism. “The impending FY23 results, due in March, are expected to reflect adverse impacts, including the devaluation of the naira and operational challenges in SA, leading to a lack of buy conviction in the stock.”
He said the impacts of the devaluation had been “worsened by regulatory hurdles and SIM registration requirements”.
In 2022, the Nigeria Communications Commission said that all operators were required to restrict outgoing calls of subscribers whose SIMs had not yet been linked with its national identity number, which is similar to SA’s ID system. The incident caused a sell-off in MTN shares at the time.
A similar directive in Ghana has resulted in subscriber decreases for MTN in that country.
“With a substantial portion of its debt denominated in US dollar, the weakening naira directly affects earnings. To address this, MTN may need to optimise its cost structure, diversify revenue streams, and enhance operational efficiency in Nigeria,” Holland said.
On this front, the group has been making an effort to cut its foreign-denominated debt, paying down R6.5bn worth of bonds in November.
MTN’s holding company leverage is now about 1.5-times.
Falling out
MTN has had a public falling out with Nigerian cellphone tower operator IHS Towers over governance concerns. MTN is the tower company’s largest shareholder with a 26% stake, while also being IHS’s largest client.
IHS, the problems of which stem from having lost more than 80% of its value on the New York Stock Exchange since its 2021 listing, recently announced a deal with Airtel in Nigeria that it hopes to use to reduce its reliance on MTN.
The outlook for Nigeria’s economy does not look promising. Oxford Economics Africa noted last week that the Naira had lost nearly 70% of its value since President Bola Tinubu took office in late May 2023, and broke through the N1,500/$ level on Wednesday.
“While output surprised to the upside, production gains remain limited due to Nigeria’s troublesome operational environment, production and supply disruptions, and persistent security challenges,” said Jacques Nel, head of macro at Oxford Economics Africa.
Inflation for the West African nation was 29.9% year on year in January, the highest since 1996.
Nel said cost-of-living pressures would keep stifling consumer spending and private sector growth in 2024. More positively, oil production averaged 1.4-million barrels a day in January, the highest in almost three years.
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