MTN is ramping up its fibre business in several African countries to capture continued demand for the high-speed internet connectivity needed to accelerate the digital economy and fintech services.
This is a key area of growth for the group, and it wants 70% of its customers in some of its more mature markets to use its fintech services.
MTN has set aside R34bn in capital expenditure, with up to to 3% and 15% of that going to its fintech and fibre businesses respectively.
MTN, which operates in 19 countries in Africa and the Middle East, will spin off its fibre businesses into MTN Global Connect (MTN GC) and its fintech business into a separate standalone company. Once the separation is completed it will seek strategic partners to accelerate growth for both entities.
MTN Group CEO Ralph Mupita said this week: “A significant number of our customers don't have access to the internet and fintech. The strong growth trajectory remains on track.”
In the year to December, MTN’s active data subscribers rose by 11.1-million to 122-million. It added 10.4-million monthly active users for its Mobile Money (MoMo) service, taking the total to 56.8-million. Transaction value in the MoMo platform increased 56.8% to $239.4bn (R3.6-trillion).
MTN has 272.4-million subscribers.
In the year to December, MTN GNC delivered a strong commercial and financial performance, signing fixed external infrastructure deals worth $38.4m and growth in external revenue rose 30% year-on-year to $288.4m.
“In the year, we continued to build scale infrastructure assets to meet the explosive growth in data traffic and the accelerating digital economy in Africa,” MTN said in a statement.
During 2021 it rolled out more than 15,000km of additional terrestrial fibre, including in SA, Nigeria, Ghana, Uganda, Kenya, Zambia and Zimbabwe, bringing its total inventory to about 100,000km. MTN’s target is to reach 135,000km by 2025.
Mupita said the structural separation of the fibre business will be completed in 2023, with asset separations already under way in SA, Nigeria, Ghana, Ivory Coast and Uganda. Fibre companies have already been established in Zambia and Kenya.
“We will bring [in] strategic partners over time,” not only as financial investors but as partners that will take up minority shares and help grow those businesses, said Mupita.
Mupita said in the longer term the group will “consider listing those businesses, but that is years ahead”.
Telkom, which has also separated its tower and mast business in subsidiary Swiftnet, this week said it had postponed its plans to list the company on the JSE by the end of March, due to the impact the Ukraine war has had on capital markets.
At MTN, fintech grew revenue by 30.9% to R15.9bn, contributing 9.3% to total group revenue of R181bn. The target is to grow fintech’s revenue contribution to 20% in the next five years.
Aslam Dalvi, portfolio manager for Camissa Asset Management, said the fintech opportunity is particularly large, with MTN well positioned to capitalise on the opportunity given its strong brand, sizeable existing market shares and well-invested asset base across its key markets.
Claude van Cuyck, director at Denker Capital, said the economics of the fintech business is “extremely positive”.
“This is a high-growth segment, with high margins, low capital intensity, strong cash flow generation and high return on invested capital. As they grow this business, they will grow intrinsic value for shareholders. The separation of the segment will allow the market to better appreciate the strong underlying business economics.”
MTN has exited Syria and Yemen and plans to do the same in Afghanistan. Mupita said the group would ideally like to complete the exit this financial year.
Commenting on MTN’s overall performance, Peter Takaendesa, head of equities at Mergence, said there was stronger operational performance mostly in the rest of Africa operations, driven by mobile data and mobile money revenue growth.
“However, the key upside surprise for 2021 was the large cash upstreaming and no major regulatory issues from Nigeria at a time other South African companies have struggled to get cash out of that country with regulators claiming large amounts of money from the likes of MultiChoice.
“The improved cash upstreaming, asset disposals and dividend suspension since 2020 have contributed to significant debt reduction on the balance sheet, though there is still some US dollar-denominated debt to deal with,” Takaendesa said.
MTN resumed its dividend, declaring 300c a share for the financial year.
Van Cuyck said the only weakness in the result was voice revenues in SA (down 5%), but this is expected in a more mature market. Overall service revenue growth in SA was solid at 6.5% and at the upper end of their guidance.
For Takaendesa, the key questions remain on the sustainability of the mobile-data revenue growth rates seen in 2021 given increasing pressure on consumer spending and whether that could result in voice-revenue cannibalisation over the mid term.
“Regulatory and taxation risks remain key areas to watch in a number of African markets, particularly in high-growth mobile services. We have already started to see some new mobile-money tax proposals in some countries as they continue to target tax revenue diversification,” he said.
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