Outline · Key Trends Shaping the Telecommunications Industry ... and advertising spend. Despite the significant progress made in the industry, there is still space for strong growth

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Outline

Section 1 Executive Summary 03

Section 2

Global Telecommunications Industry 08

Evolution of the Telecommunications Industry

Global Telecommunications Industry in the Last Decade

Telecommunications Industry Value Chain

Global Population Drives Industry Growth

Global Capital Expenditure Remains Stable

Key Trends Shaping the Telecommunications Industry

Section 4 The Nigerian Telecommunications Industry 15

Telecommunication Sector Growth Driven Mainly by Nigerian Population

Regulatory Environment

Evolving Trends in the Domestic Telecommunications Industry

Company Analysis 20

MTN Nigeria Communications Plc

Company Profile

Financial Performance Analysis

Data and Digital Services Underpin Revenue Growth Strategy

Relatively Stable COS and OPEX

Steady Rise in CAPEX and AFCF

EBITDA Margin Expands on Double-Digit Growth in Revenue and Low Costs

Net Debt to EBITDA Moderates

Steady Profitability Growth

Valuation Analysis

Price Target and Recommendation

Valuation Summary

Airtel Africa Plc

Company Profile

Business Operational Model and Products

Financial Performance Analysis

Revenue Growth Underpinned by Voice, Data and Mobile Money

Operating Expenses Decline on Cost Optimisation

Capital Expenditure Expands in Support of Network Expansion and Modernisation

EBITDA Margin Expands on Revenue Growth and Stable OPEX

Valuation Analysis

Price Target and Recommendation

Valuation Summary

List of Charts, Tables and Figures 43 Section 6

Section 3

Investment Thesis 06

Section 5

Afrinvest (West Africa) Limited 46

Contact

Disclaimer

Section 7

The Nigerian Telecommunications Industry Report

Executive Summary

Section One

Page 4 The Nigerian Telecommunications Industry Report

Executive Summary

In the decade between 2010 and 2019, the global telecommunications industry

grew rapidly, powering the global digital economy, improving connectivity and

driving globalisation. More recently, data from the Global System for Mobile

Communications Association (GSMA) revealed that the industry GDP grew at a 5-

year CAGR of 5.5% to $4.1tn in 2019. The industry accounted for 4.7% of global

GDP relative to 4.2% recorded in 2015. The rapid explosion of the digital

economy has led to even greater competition and shifting customer needs, with

operators having to expand their service portfolios and sustaining capital

expenditure for facility and network upgrades to boost capacity and meet

demand.

Since 2010, mobile operators globally have invested over $1.5tn to deploy

mobile and fixed broadband networks. However, investment is slowing as

CAPEX grew at a CAGR of 0.4% between 2017 and 2019 from -3.3% CAGR

between 2014 and 2016. Relative to industry GDP, CAPEX has averaged 5.0%

between 2014 and 2019. With the need to invest in 5G infrastructure which is

critical to the digital economy in the future, operators would need to increase

investment to unlock its transformative potentials. This is even more important

as mobile operators have been exploring alternate sources of revenue lately

given the need to monetise data as the falling share of voice revenue is leading

to new revenue streams. Given this backdrop, some of the key trends that would

shape the telecoms industry include the development and adoption of 5G

network, rise of IoT, evolution of the content ecosystem and the transformative

power of artificial intelligence (AI).

In Nigeria, growth has been explosive at a CAGR of 31.8% between 2000 and

2019, driven by reforms that liberalised the sector and attracted foreign and

domestic investment. From a negligible 0.1% contribution to GDP in 1999, prior

2019, with nominal GDP rising 200.0x from ₦26.3bn to ₦7.4tn. Interestingly, the

sector has been the fastest growing at a normalized average (excluding 2000

2001) of 34.9% between 2000 and 2010 before moderating to an average

growth of 4.6% from 2011 to 2019. The sector has also been one of the most

resilient, with growth averaging 6.9% between 2017 and 2019 while also being

growth since the 2016 recession.

over 200.0 million people, with total subscribers at 184.7m in 2019 from 2.3m in

2002, reflecting an 18-year CAGR of c.27.7%. Likewise, the penetration rate

measured by teledensity (measures the number of telephone lines for every 100

individuals in an area) increased from 1.9% in 2002 to 96.8% in 2019, with usage

of telecoms services predominantly mobile-based. The boom in the sector has

also been driven by massive investment, which has supported the deployment of

network infrastructure across Nigeria while intense competition has led to the

affordability of services. The telecoms market is mainly oligopolistic, dominated

by four players (MTNN, AIRTEL, GLOBACOM and 9MOBILE). As at 2019, MTNN is

the market leader ranking highest with a share of 37.2% and 42.9% of the total

voice and data subscribers while GLOBACOM trailed, accounting for 28.0% and

22.9% respectively. Similarly, Airtel Africa accounts for 27.2% and 27.4% of the

The rapid explosion of the

digital economy has led to

even greater competition

and shifting customer

needs, with operators

having to expand their

service portfolios and

sustaining capital

expenditure for facility and

network upgrades to boost

capacity and meet demand.

Benedict Egwuchukwu

+234 1 270 1690 ext. 317

[email protected]

Team Lead

Abiodun Keripe

+234 1 270 1690 ext. 314

[email protected]

Analyst


Executive Summary

total voice and data subscribers with 9MOBILE having the least at 7.4% and 6.4%

respectively. The prospects of new entry into the industry remain limited given

economies of scale and the high capacity for huge capital expenditure, research

and advertising spend.

Despite the significant progress made in the industry, there is still space for

strong growth in the future. Broadband penetration remains weak at 37.8% as

at 2019 relative to peers such as South Africa and Egypt, suggesting that more

investment is needed and there is significant earnings prospects. Currently, the

ARPU of our coverage companies remains weak relative to levels in other peer

countries such as South Africa and Egypt. We believe platforms of operators can

be leveraged to catalyse change in other sectors, especially financial services, and

deliver enhanced earnings performance. The major pressure point for the

ensure fair competition restraining the growth of some major players. Similarly,

regulation has restricted the expansion into other business lines with strong

prospects such as financial services, unlike in markets like Kenya and South

Africa. We believe the speed and flexibility of regulation would shape the

trajectory of growth and investment in the sector.

The major pressure point

for the industry has been

heavy regulatory fines and

policies to ensure fair

competition restraining the

growth of some major

players.


Section Two

Investment Thesis


The telecommunications sector in Nigeria remains the fastest growing, the most resilient and the largest contributor to

-band penetration at 37.8%

and the huge prospects for mobile money under the right regulatory framework. These opportunities drive our

optimistic outlook for the sector despite weak macroeconomic conditions. Accordingly, we make a strong case for

investing in MTNN and Airtel Africa, with market share of subscribers at 37.3% and 27.2% respectively. The two

companies have also continued to invest in telecommunications infrastructure to boost capacity and deliver superior

services to customers, with annual CAPEX at around ₦617.4bn and ₦580.7bn respectively over the past three years. With

regulators loosening previously rigid rules and providing to telcos an even better opportunity to deliver financial

services, we see another pathway for strong growth reminiscent of historical levels in the medium-term. The immediate

worry is the unprecedented economic crunch brought by the COVID-19 pandemic worldwide, which could affect 2020

earnings. However, the industry is expected to remain resilient as the digital economy has boomed during the lockdown

implemented to fight the pandemic.

Our analysis shows that MTNN (10.6x) and Airtel Africa (4.0x) are undervalued with an average P/E multiple of 7.3x

compared with BRICS markets such as Brazil (11.6x), Russia (13.3x), India (13.4x), China (48.5x) and South Africa (12.5x).

Put together with our positive outlook for the sector over the medium-term, we believe the opportunity is attractive.

Based on our valuation of MTNN and AIRTELAFRI, we arrived at a target price (TP) of ₦147.67 and ₦419.53 per share

respectively, representing an upside potential of 28.4% and 40.4% relative to the market price of ₦115.00 and ₦298.90

per share as at 22-May-

Investment Thesis


Section Three

Global Telecommunications Industry



Evolution of the Telecommunications Industry

Before the advent of electrical telecommunication in the

early 1800s, pre-historic communication methods include

the smoke signals (or beacons) and the semaphore lines

(optical telegraphs) created in the 1790s. In the 1800s, the

telephone exchange. The telephone exchange

transformed telephone from a point-to-point device to a

network that connected subscribers. This made long

distance calls viable, especially with the invention of the

induction coil that prevented signal distortion on long

range lines. The shortcomings of the telegraph paved

way for the radio waves. However, the limited capacity

increased cost to $6.0 per minute (equivalent to $80.0

today), with calls requiring advance booking. Hence,

another means of communication was required, leading

to the invention of the TPC-1 cable in 1964. Shortly after,

the first commercially viable communications satellites

went into operation, rendering the cable obsolete.

The 1980s changed the telecommunication (telecoms)

industry with the arrival of mobile phones and fibre optic

cables capable of transmitting data over long distances at

higher bandwidth. Suddenly, the limits within which

telecoms had operated for decades were no longer

applicable. However, the downside to the fibre optic

cables was the high cost. Nonetheless, it paved way for

the internet, making instantaneous communication a

commodity rather than the luxury it had been through

the 20th century.

Over the last decade, the telecommunications industry

has changed radically with the customer needs and

competitive landscapes shifting unprecedentedly. During

this time, operators have expanded their service

higher capital expenditures for facility and network

upgrades. The industry continues to evolve and build

upon advances in networking, computing and electronics.

These advancements in technology have brought

diversification, innovation and convenience to

telecommunication.

Global Telecommunications Industry in the Last Decade

In the decade between 2010 and 2019, the telecoms

industry grew unprecedentedly, powering the global

digital economy, improving connectivity and driving

globalisation, enabling productivity and improving

outcomes for businesses and individuals. Data from

Global System for Mobile Communications Association

(GSMA) revealed that the telecoms industry GDP grew at

a 5-year CAGR of 5.5% to $4.1tn in 2019. The industry

accounts for 4.7% of global GDP relative to 4.2%

recorded in 2015. Industry revenue grew at a CAGR of

1.5% to $1.2tn, with the developed markets contributing

61.2% while emerging markets contributed 38.8% as at

2019.

However, the pace of growth has recently slowed as a


Chart 1: Telecommunications Contribution to Global GDP

Source: GSMA, Afrinvest Research

result of weaker unique subscriber growth, regulatory

constraints and increased competition. With the share of

unique mobile subscribers marginally increasing to 67.4%

of global population in 2019 vs. 67.2% in 2018, mobile

markets are approaching saturation. It is expected that

growth would be sluggish, taking more years for the

number of unique mobile subscribers to increase relative

to world population. Between 2020 and 2025, Asia Pacific

is expected to add c.247 million new subscribers, while

Sub-Saharan Africa, MENA, Latin America, Northern

America, Europe and Commonwealth Independent State

(CIS) would add c.363 million new subscribers.

Similarly, the core function of telecoms is threatened by


Chart 2: Global Mobile Unique Subscribers

50.0%

63.0%65.0% 66.0% 67.0% 67.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018 2019

Bill

ion

Unique Subscribers Penetration Rate (%)

$1.1 $1.1 $1.0 $1.1 $1.1 $1.1 $1.2 $1.2 $1.2 $1.3 $1.3

$0.2 $0.4 $0.4 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.6 $0.6

$1.7 $1.6 $1.9

$2.0 $2.3 $2.5 $2.6 $2.7 $2.8 $2.9 $3.0

3.8%

4.2%4.4% 4.5% 4.6% 4.7% 4.7% 4.8% 4.8% 4.9% 4.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

$' T

rillio

n

Mobile Ecosystem Indirect Productivity %GDP



increased competition from Over-the-Top (OTT) services

such as the social media platforms. OTT services which

are delivered over the network of service providers,

allow users to communicate at cheaper rates relative to

traditional telecoms. This has pressured industry margins

given high rates of adoption, reducing revenue from

voice though it has served as a boost to data revenue. In

addition, Mobile Network Operators (MNOs) have been

forced to diversify from their core functions to sustain

growth and boost resilience. For example, MNOs like

AT&T and Comcast expanded their revenue stream by

positioning themselves in the content provider space.

Other areas of non-core activities which has supported

industry revenue include Artificial Intelligence and

Internet of Things (IoT) solutions, among others.

The explosion of data consumption globally continues

to drive investments to boost network capabilities. The

network upgrades have resulted in reduced costs and

efficient delivery of services. Historically, these

investments have led to improved network

technologies with MNOs moving from 2G to 3G, and

now the widely used 4G. To further increase efficiency

and support future growth, there has been great

progress in 5G development which promises faster

speed and improved connectivity. These investments

would accelerate penetration of MNOs in the OTT

space as well as in the provision of IoT and artificial

intelligence solutions, virtual reality and streaming

services. As a result, the industry is expected to

generate higher gains from productivity amounting to

c.61.0% of global telecoms GDP by 2024. However, the

outlook for the industry indicates weak prospects as

growth is expected to oscillate around 1.0% annually

until 2025.

Telecommunications Industry Value Chain

The mobile ecosystem consists of MNOs, infrastructure

providers, device manufacturers, distributors, retailers,

content and application developers and other services.

MNOs offer voice calls, short message service (SMS) and

data for business-to-business (B2B) and business-to-

consumer (B2C) services. Operators generate revenue

from airtime top-ups or subscriptions which can be

purchased in various ways such as designated agents or

digital banking services, among others. Additionally,

they offer value added services via business-to-business

Chart 3: Global Mobile Internet User Unique Subscribers

32.9% 33.9%

48.0%

43.0%

47.0%49.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018 2019

Bill

ion

Mobile Internet Users Penetration Rate (%)


Chart 4: Telecommunications Value Chain

Source: Afrinvest Research

Licence

• Licence acquisiton to operate on spectrum

• Licence issued by regulators

Infrastructure

• Cell Towers

• Base Transceiver Station (BTS)

• Data storage

Mobile technologies, devices & services

• Registration and activation of subscribers' lines

• Airtime and data offerings

• Other subscripton offerings

User interface

• Mobile devices

• Sim cards

• Value added Services

Support services

• Customer care services



or business-to-consumer services such as Mobile money

services, sports and infotainment services, online

gaming, OTT services, etc.

To acquire access to bandwidth on a spectrum for

service delivery, operators must purchase a licence. The

spectrum, described as a limited range of radio

frequencies used to transfer data, exists on its own and

is a sovereign asset managed by the regulators of the

telecoms industry. Due to its limited nature, companies

must compete to acquire licences. As a result, MNOs

usually consolidate through mergers and acquisitions

(M&A) to expand their licence portfolio. For instance,

the merger between Sprint and T-Mobile led to a better

service delivery at lower prices, and MTNN acquisition of

Visafone Communications gaining 800MHz spectrum.

To transmit radio signals through the spectrum, MNOs

need infrastructures in the form of Base Transceiver

Stations (BTS). Service providers can acquire such assets

through purchases or leases. In some instances, service

providers acquire stakes in infrastructure companies,

either partly or wholly, to gain an advantage in

developing their networks.

Mobile network operators also provide the required

devices or technologies needed to deliver their services

to customers. To enjoy the services rendered by MNOs,

the consumer must have a Subscribers Identification

Modules (SIM) card tailored to the operator in mind.

With this, operators can offer their services which

include voice, text and data to customers. In addition,

some operators retail mobile devices although

consumers mostly acquire such devices elsewhere.

Finally, as a strategy for customer retention, industry

operators provide support services to enhance customer

experience on their network. This include the provision

of detailed information on services and product

offerings.

Global Population Drives Industry Growth

Growth in the telecoms industry is primarily driven by

population size on growth can be measured using

teledensity which is the number of telephone lines for

every 100 individuals in a given area. The reduction in

the cost of telecoms devices and cheaper tariffs have

also supported the demand for telecoms services.

As at 2019, the Commonwealth of Independent States

(CIS) had the highest level of mobile cellular

subscription with 140.1 per 100 individuals, higher than

Europe at 118.4 and America at 110.1. In 2019, Asia &


Source: International Telecommunication Union (ITU), Afrinvest Research

Chart 5: Teledensity across Global Regions (2018 – 2019)

80.1

100.6

110.1 111.7118.4

140.1

76.7

100.2

109.7105.3

118.5

139.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Africa Arab States The AmericasAsia & Pacific Europe CIS

Per

100 I

nhabitants

2019 2018

Chart 6: Mobile and Fixed Broadband Subscriptions per 100 inhabitants

30.7

60.2

70.977.9

90.794.9

34.0

67.3

89.085.4

97.4104.4

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Africa Arab States Asia & Pacific CIS Europe TheAmericas

Per

100 I

nhabitants

2018 2019

0.4

7.4

13.3

18.5

30.9

21.2

0.4

8.1

14.4

19.8

31.9

22.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Africa Arab States Asia & Pacific CIS Europe The Americas

Per

100 I

nhabitants

2018 2019



Pacific region grew the most by 6.0% to 111.7 per 100

individuals. On the other hand, Africa lags behind the

rest of the world with 80.1 mobile cellular subscriptions

per 100 individuals, although this is growing rapidly.

The increased digitisation of the economy has increased

the demand for internet services which drive data

subscriptions. This is captured by an increase in the

number of individuals using the internet to 4.1 billion

(penetration rate of 53.6%), a rise in bandwidth

consumption of 43.7% between 2018 and 2019 and the

rise in network coverage of 3G and 4G by 2.6% and

2.5% respectively as at 2019. The surge in data

consumption has been driven by the increased usage of

data services as consumers now communicate mainly

through OTT services, relying less on traditional voice

channels.

In terms of mobile broadband, subscriptions in Asia &

Pacific grew 25.6% to 89.0 per 100 inhabitants in 2019,

trailed by Africa and the Americas which grew 10.7%

and 10.0% to 34.0 and 104.4 per 100 inhabitants

respectively. Although, mobile penetration in Africa is

the lowest among the regions, it is growing fast. In

terms of fixed broadband, subscriptions in Arab states

grew 10.2% to 8.1 per 100 inhabitants, trailed by Asia &

Pacific and Africa rising 7.9% and 7.3% to 14.4 and 0.4

per 100 inhabitants respectively.

Global Capital Expenditure Remains Stable

Recently, the need for increased capacity and coverage

resulting from rising demand for better services (due to

increased subscribers, expanding digital services,

technology advancements) has led MNOs to make large

investments on network upgrades and new

infrastructures. These investments support growth

within various industries such as improved

manufacturing operations using IoT, provision of better

medical care through machine learning and enhanced

remote working with improved data services among

others.

Since 2010, mobile operators globally have invested just

over $1.5 trillion in CAPEX to deploy mobile and fixed

broadband networks. However, investment is slowing as

CAPEX grew at a CAGR of 0.4% between 2017 and 2019

from a -3.3% CAGR between 2014 and 2016. Relative to

industry GDP, CAPEX has averaged 5.0% between 2014

and 2019. After the financial crisis in 2008/09, capital

investment increased consistently before peaking in

2015 at around $193.0bn. In 2016, the global CAPEX

level fell 13.0% to $168.0bn and subsequently

moderated following the completion of 4G networks in

some regions and decline in the cost of equipment. As

at the end of 2019, the global CAPEX settled at

$161.0bn.

According to GSMA, in 2019, the 4G network

maintained its lead over the 2G and 3G networks to

become the main mobile technology across the world,

having over 4 billion connections. This accounts for

52.0% of the total connections (excluding licensed

cellular IoT). On the other hand, the 5G network is

gradually gaining grounds as it is officially available

across regions, with the aid of 5G smartphones and

awareness campaigns. In 2025, it is projected that

20.0% of global connections would be on 5G. To

support this change, mobile operators would have to

invest c.$1.1tn between 2020 and 2025, of which

c.80.0% would be on 5G infrastructures.

Key Trends Shaping the Telecommunications Industry

Mobile operators have been exploring alternate

sources of revenue lately, as the need to monetise data

presents a challenge, leading to a rethink on new

revenue streams and business capabilities. Given this

backdrop, some of the key trends that would shape the

telecoms industry include the development and

adoption of 5G network, rise of IoT, evolution of the

content ecosystem and the transformative power of

artificial intelligence (AI).

5G Development and Adoption

The future would increasingly be dependent on

connectivity, from artificial intelligence to automated

cars to IoT and augmented & virtual realities, which

would require high-speed internet connections. To

keep up with emerging technologies, not to mention

Source: International Telecommunication Union (ITU), Afrinvest Research

Chart 7: Global Capital Expenditure ($’tn)

6.2% 6.1%

5.1%

4.4%4.1%

3.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

$-

$0.05

$0.10

$0.15

$0.20

$0.25

2014 2015 2016 2017 2018 2019

CAPEX ($'tn) CAPEX to Industry GDP



the torrent of video streaming, the mobile industry has

introduced the fifth generation (5G) wireless network

technology. 5G introduces a new era of connectivity,

boasting of multi-gigabit speeds, reduced latency and

high reliability and support for IoT connectivity that was

previously unfeasible with 4G LTE.

The adoption of 5G is rising as all regions are deploying

infrastructures, although South Korea, United States,

Japan, China and Europe are leading its development. It

is expected that network-related capital expenditures

would increase by 60% from 2020-2025 while global

investment into 5G industrial chain is likely to reach

about $3.5tn between 2020-2035, with China

contributing the largest share of 30%. Meanwhile, over

$12.0tn in sales is expected to be generated by global

industry applications driven by 5G. Likewise, by 2034,

5G is expected to contribute over $2.2tn to the global

economy.

Rise of Internet of Things (IoT)

The IoT has been around since the early 1980s but

gained prominence in the last decade. In 2019 alone,

the number of IoT connections reached 12 billion,

equaling $343.0bn in revenue. IoT has evolved from

just connecting devices to solving problems with

solutions, which can then be analysed to create value

and provide actionable insight. The number of IoT

connections is expected to reach 25 billion globally by

2025 according to GSMA. As a result, revenue is

Chart 8: Key Trends Shaping the Mobile Industry


5G Development and Adoption

Rise of Internet of Things (IoT)

Evolution of the Content

Ecosystem

Transformation Power of Artificial

Intelligence

expected to reach $1.1tn, increasing at an annual

average rate of 23.0%. Growth will be driven by a

proliferation of its usage in smart homes and buildings,

which will account for more than half of the 16 billion

new IoT connections over this period. Additional,

consumer and enterprise connections will further

increase to 11.4 billion and 13.3 billion respectively.

Evolution of the Content Ecosystem

One essential non-core activity service providers have

leaned towards is the content ecosystem which involves

the consumption of digital content, majorly video. It is

currently undergoing significant changes driven mostly

by consumer behavior, new players and changing

content production and distribution models. On a daily

basis, the average time and frequency with which

individuals watch videos is constantly increasing, and

mobile is the key driver. This creates an environment

that offers opportunities for expansion, and various

operators have seized this advantage by positioning in

the content space or strengthening their existing

content offerings. Likewise, operators are looking to

reduce subscriber churn in core business areas and

attract higher ARPU (average revenue per user)

premium customers. For example, AT&T acquired

content provider Time Warner for $85.0bn in 2016 to

changing preference,



Transformative Power of Artificial Intelligence

MNOs are increasing investment in AI through the aid

of venture capitalist, given its importance to business

and digital transformation in the future. For service

providers, AI offers opportunities to increase

operational efficiencies in terms of cost reduction and

improved industry profitability. Additionally, the sale of

AI solutions as a product to consumers and enterprise

would lead to further revenue growth.

According to GSMA, global revenue from AI is expected

to reach $90.0tn by 2025 and could impact the wider

economy potentially contributing about $16.0tn to

global GDP by 2030, equivalent to an uplift of 14%. This

would be achieved through a combination of

productivity gains from businesses automating processes

and augmenting their existing labour force with AI

technologies and increased consumer demand resulting

from the availability of personalised and/or higher-

quality, AI-enhanced products and services.


The Nigerian Telecommunications Industry

Section Four


Domestic Telecommunications Industry

Telecommunications Sector:

Sector Post Military Incursion

The history of the Global System for Mobile

Communication (GSM) in Nigeria dates back to 2001

during the deregulation and liberalisation of the

telecommunications industry. GSM has become the

predominant means of communication in Nigeria

overshadowing the fixed line telephones. Since the debut

of the GSM in 2001, the Nigerian telecommunications

industry has become one of the largest

telecommunication markets in Africa.

The growth in the telecommunication industry remains a

major driver of innovation and transfer of technology in

the economy. From a negligible 0.1% average

contribution to Gross Domestic Product (GDP) before

contribution to GDP since 2010 has averaged 8.9% with

nominal activity rising from ₦26.3bn to ₦7.4tn by 2019

(implying more than 200.0x increase). More interestingly,

the sector was the fastest growing in Nigeria between

2000 and 2010, growing at a normalized average of

34.9%, before moderating to an average growth of 4.6%

from 2011 to 2019. Possible attributable factors to

moderation in growth could be mobile subscribers

approaching saturation, recession in 2016, intense

competition and regulatory constraints. As at Dec-2019,

the telecoms sector accounted for 19.6% of the larger

services sector of the economy.

population (over 200.0m people) with total subscribers at

184.7m in 2019 from 2.3m in 2002, reflecting an 18-year

CAGR of c.27.7%. Likewise, the penetration rate

measured by teledensity increased from 1.9% in 2002 to

96.8% in 2019. Over the period, the number of GSM

subscribers have outgrown fixed lines subscribers,

growing at a 16-year CAGR of 20.6% from 2004 while

fixed line subscription has fallen at a CAGR of 13.2%.

Currently, telecommunications in Nigeria is

predominantly mobile-based.


Chart 9: Percentage Contribution of Telecommunications Industry to GDP and Growth

Rate at Constant Prices (1999 – 2019)

Source: NCC, NBS, Afrinvest Research

Chart 10: Historical Trajectory in the Number of Subscribers and Teledensity (%)

Source: NCC, Afrinvest Research

0.1%

1.5%

2.4%

3.7%

5.9%

9.0%8.6% 8.5%

8.9%9.5%

10.3%

5.2%

1056.2%

26.9%30.5%

34.6%

34.7%

1.2%

4.7%

4.5%

-2.0%

11.4%

-200.0%

0.0%

200.0%

400.0%

600.0%

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1200.0%

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12.0%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

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2015

2016

2017

2018

2019

Contribution to GDP Real Growth Rate

Chart 11: Mobile Subscriptions vs. Fixed line Subscriptions


0.0

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2019

Millions

Millions

Mobile Subscriptions Fixed lines subscriptions

The structure of the Nigerian telecoms market is

oligopolistic with four players controlling a market

share of 99.9%, split into MTNN 37.3%, GLOBACOM

28.0%, AIRTEL 27.2% and 9MOBILE 7.4% as at

December 2019. There are high barriers to entry and

homogenous but purportedly differentiated products

and services streamlined into the various service

channels including GSM, CDMA, Voice over IP, Fixed

Wired and Fixed Wireless.

Telecommunication Sector Growth Driven Mainly by

Nigerian Population

consumer spending and investment by operators

majorly accounted for growth in the sector.

: Nigeria has the largest

0.0%

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140.0%

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Te

ledensity (

%)

No. of S

ubscrip

tio

ns (

million)

No. of Subscriptions Teledensity



population in Africa with an estimated 200 million

people growing at 2.7% annually, which has been the

major catalyst of growth in the telecoms sector. While

population grew 1.6x to 201.0 million between 2002 and

2019, total subscribers in the industry grew 80.3x to 184.7

million subscribers between 2002 and 2019. Likewise,

teledensity increased from 1.9% in 2002 to 96.8% in

2019, supported by the population boom. We expect the

that is expected to grow at 2.7% and a higher share of

the population outside the median age of 18.1 years.

Consumer Spending: According to the consumer

expenditure pattern report for 2019, total consumer

spending on telecommunications amounted to ₦2.2tn, a

5.5% of non-food consumption expenditure. Comparing

to a share of 0.7% from CPI Weights based on 03/04 NLSS,

consumer spending has risen significantly to boost

growth in the sector. The growing demand for voice,

data and mobile money services especially in a

technology driven world will continue to support revenue

stream for the industry.

Investment by Operators: The NCC estimated that total

investment in the Nigerian telecom industry had reached

$70 billion in 2019. These investments have driven

growth within the sector as the NBS data on GDP

revealed the telecoms sector contributed about ₦7.4tn in

2019, an 11.4% y/y growth, indicating a very fast-growing

and resilient sector within the economy. Despite these

investments, it is inadequate for one of the fastest

growing telecoms markets in the Africa at 11.4%. In

order to sustain this momentum, more investments

would be required to upgrade and maintain the current

3G and 4G network infrastructure.

Four Players Dominate Telecommunications Market

MTNN Ranks Highest Across Segments

Nigeria telecoms market is mainly oligopolistic,

dominated by four players (MTNN, AIRTEL, GLOBACOM

and 9MOBILE). MTNN is the market leader ranking

highest with a share of 37.2% and 42.9% of the total

voice and data subscribers while GLOBACOM trailed,

accounting for 28.0% and 22.9% respectively. Similarly,

Airtel Africa accounts for 27.2% and 27.4% of the total

voice and data subscribers with 9MOBILE having the

least at 7.4% and 6.4% respectively. With a 99.9%

market share of the major players, new entry into the

Chart 13: Total Number of Voice and Data Subscribers (DEC 2019)


Chart 12: Market Share based on GSM Subscriptions (DEC. 2019)


MTNN, 37.3%

Airtel, 27.2%

Globacom, 28.0%

9Mobile, 7.4%

39.5%

27.3%25.9%

7.0%

0.1% 0.0% 0.0% 0.0% 0.1% 0.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

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40.0%

45.0%

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Voice Subscribers (m) Data Subscribers (m) Total Subscribers (%)



184.4m (99.8%) trailed by VoIP (166,068; 0.1%) and Fixed

Wired (107,154; 0.1%). Licensed service operators in GSM

are MTNN (37.3%), AIRTEL (27.2%), GLOBACOM (28.0%),

9MOBILE (7.4%) and VISAFONE (0.1%); Fixed wired

industry remains difficult given their high economies of

scale and capacity for huge capital expenditure, research

and advertising spend.

Across the major players in the industry, quality and price

towards desired operators. Given the difference in

coverage across geography, some operators are more in

demand. To ensure that consumers can easily switch

between network operators, the Mobile Number

Portability policy was introduced by the NCC in December

2013. Since the introduction of this policy, NCC market

data show that MTNN recorded net outgoing porting of

269,670 subscribers, followed by GLOBACOM and AIRTEL

with 121,162 and 34,761 respectively while 9MOBILE

recorded net incoming porting of 448,040 subscribers.

The service channels used by licenced operators are GSM,

Fixed Wireless, Fixed Wired and VoIP according to the

NCC as at Decembers 2019 while CDMA has become an

abandoned technology. Based on these service channels,

GSM has the highest number of subscribers of about

Chart 14: Cumulative Incoming and Outgoing Porting Activities of Network Operators

(DEC 2013 – DEC 2019)


110,890

208,303

87,322

578,497

380,560

243,064208,484

130,457

-269,670

-34,761

-121,162

448,040

-400,000

-300,000

-200,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

MTNN Airtel Globacom 9mobile

Incoming Porting Outgoing Porting Net Incoming Porting

Chart 15: Number of Active Subscribers of Technologies used by Licenced Service Providers (December 2019)


Airtel, 27.2%

9mobile, 7.4%

Globacom, 28.0%

MTNN, 37.3%

Visafone, 0.1%

MTNN Fixed, 5.6%

Glo Fixed, 2.7%

ipNX, 2.0%

21st Century, 89.8%

Smile, 97.6%

NTEL, 2.4%

GSM

Fixed Wired

VoIP



Evolving Trends in the Domestic Telecommunications

Industry

Payment Service Bank (PSB): In a bid to promote

financial inclusion and enhance access to financial

services for low income earners and the unbanked

segment of the society through leveraging on

technology, the CBN proposed the establishment of

payment service banks. In 2018, the CBN and NCC signed

a memorandum of understanding granting telcos the

right to acquire licences to commence operations as PSBs

with a capital requirement of ₦5.0bn. Institutions such as

Money Master PSB owned by Globacom, 9PSB owned by

9mobile and Hope PSB have acquired the PSB licence.

MTNN has acquired the super-agent licence (right to

perform banking activities) and awaits the PSB licence

goal of financial inclusion in Nigeria but also for telecom

operators seeking new drivers of growth. Nigeria has the

infrastructure to drive digital money through the

existing robust telecoms networks across the country as

well as high number of subscribers. Likewise, PSBs are

expected to rely on technology and existing retail

footprints, providing them with the foundational

infrastructure to deliver financial services to rural and

unserved customers at lower costs.

TV and Video Content Distribution: Similar to telecom

operators globally positioning in the content space,

Nigeria telecom providers have joined the movement,

although at a slower pace. With the likes of MTN

music+, SuperTV app (9mobile), Airtel Wynk, Airtel Play

Portal, 3flix Mobile TV and now Airtel TV, the content

space is gradually gaining grounds in the society.

However, at the moment, Wynk, Airtel Play Portal, and

3flix Mobile TV have been shutdown.

Globally, video streaming services amassed $245.3bn in

2018 and is predicted to reach $688.7bn in 2024, at a

CAGR of 19.1%. This creates an environment that offers

opportunity for expansion in the telecoms industry.

Examples include AT&T, 9mobile and recently, Airtel

Africa (Airtel TV). Users require a stable internet

connection, and can choose to stream in low, medium,

high or auto quality. A major source of revenue is

through data consumption needed to stream this

service. For instance, Airtel TV is available to subscribers

on its network and can only be viewed through purchase

of data from its network. This strategy prevents the

company from increasing revenue. Nonetheless, success

in the content space will depend on the ability of

telecom providers to reduce the cost of data, provide a

strong internet connection and add more recent content

to the apps.

includes 21st Century (89.8%), MTNN (5.6%), GLOBACOM

(2.7%) and ipNX (2.0%) while VoIP is made up of SMILE

(97.6%) and NTEL (2.4%).

Chart 16: Market Share by Technology (%)


99.8%

0.0%

0.1% 0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

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70.0%

80.0%

90.0%

100.0%

110.0%

GSM CDMA Fixed (Wireless/Wired) VoIP

Regulatory Environment

The Nigerian telecoms industry is regulated by the

Nigerian Communications Commission (NCC). The

Communications Act, 2003. The NCC promotes healthy

competition among service operators and ensures the

provision of efficient and qualitative telecoms services

throughout the country.

Some of the successes recorded in the Nigerian telecoms

industry can be attributed to the regulatory prowess of

the NCC, which eliminated monopoly, protected the

interest of service operators, investors and subscribers. For

instance, NCC established a minimum standard for quality

of service (QoS) based on call setup success rate, drop call

rate, standalone dedicated control channel congestion

and traffic channel congestion to ensure consumers have

access to high quality communication. Nonetheless,

operators blame poor QoS on community related

challenges, incessant fibre cuts, scarcity of diesel to power

base stations, among others. All of which causes slow

industry and profitability growth.

The massive deployment of network infrastructure across

Nigeria, affordability of GSM lines and regulatory checks

and balances by the NCC, has led to growth in the

number of active lines from 400,000 in 2001 to c.184.4

million in December 2019. These achievements

and made Nigeria investment haven for foreign telecom

operators.


Section Five

Company Analysis:

MTN Nigeria Plc


Company Analysis

MTN Nigeria Communications Plc

Company Profile

Overview

Since the commencement of operations in August 2001,

MTN Nigeria (MTNN) has grown to become the biggest

telecoms operator in Nigeria with a total GSM subscriber

base of 68.8m as at December 2019, representing 37.3%

of the 184.4m active lines in the industry. The Company

provides a wide range of products and services, including

mobile voice, data and digital services, Fintech and busi-

ness solutions with the 2G, 3G and 4G LTE technology

available in Nigeria. MTNN operates a predominantly pre-

paid business with 99.2% of its customers on pre-paid

plans. After acquiring one of the four licenses to operate

GSM services from the Nigerian Communications Commis-

sion (NCC) in 2001 as an industry pioneer, the Company

has recorded notable feats in the Nigerian telecommuni-

cations sector. Currently, MTNN ranks as the largest sub-

sidiary within the MTN Group by revenue and EBITDA

with a share of 31.0% and 40.1% in 2019, higher than

South Africa at 30.2% and 27.1% respectively.

2019)

30.2%33.2%

31.0%28.3%

44.7%48.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2019 2018

South Africa Nigeria Others

27.1%

33.6%

40.1%

35.6%

39.6%41.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

2019 2018

South Africa Nigeria Others

Source: MTN Group, Afrinvest Research

One Year Trajectory of NSEASI & MTNN

-

5,000.00

10,000.00

15,000.00

20,000.00

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30,000.00

35,000.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

150.00

160.00

May-1

9

Jun

-19

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-19

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r-20

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MTNN NSEASI

MTNN Shareholding Structure

MTN International (Mauritius)

Limited, 76.08%

Nigerian Shareholders,

0.00%

Stanbic IBTC Asset

Management Limited, 9.64%

Mobile Telephone Networks NIC B.V., 2.75%

Public Investment Corporation SOC Limited, 1.75%

Others, 9.78%

Rating BUY

Share Price (₦) 115.00

2020/21 TP (₦) 147.67

Upside Potential (%) 28.4%

52 Wks High (₦) 149.00

52 Wks Low (₦) 90.00

Outst. Shares (bn) 20.4

Free Float (%) 23.9%

Mkt Cap (₦'tn) 2.3

Mkt Cap (US$'bn) 6.5

FY:2018 FY:2019 2020F

Revenue (₦'bn) 1,039.1 1,169.8 1,289.2

EBITDA (₦'bn) 434.0 629.9 723.9

Net Profits (₦'bn) 145.7 202.1 303.7

EPS, ₦ 7.16 9.93 14.92

PE Ratio (x) 12.6 10.6 8.2

EV/EBITDA (x) - 3.9 3.9

Dividend Yield - 12.2% 19.7%

Trading Data - May 22nd, 2020 (MTNN)

Profitability and Valuation Metrics (₦)

Source: Company Filings, NSE


2014, MTNN partnered with Diamond bank to launch

network. Customers on the platform have since grown to

Services (YDFS) aiming at a 500,000 mobile agent net-

work. This has led to VAS (which include Fintech revenue)

rising by 258.5% to ₦37.2bn from ₦10.4bn in 2014. In

light of the merger between Diamond and Access, the

MTNN was granted a full Super-Agent Licence by the CBN

(YDFS) to offer financial services. Likewise, the company

has applied for a Payment Service Bank (PSB) licence

which would enable it offer a wider range of financial

services. Recently, MTNN collaborated with Lumos Mobile

Electricity (a solar electricity provider) for the distribution

and payment of off-grid power via the MTN network.

Company Analysis

To deliver its services in the face of growing consumer

demand, MTNN continues to invest in capacity through

spectrums. The company acquires licenses through auc-

tions and these are renewed after expiry. However, given

that spectrums are short in supply, the company has en-

gaged in obtaining licenses through M&A to rapidly up-

grade its capacity to provide high-speed wireless internet

services. In 2016, the company acquired a 100.0% stake

CDMA and Fixed wireless operator, along with its

800MHz spectrum. MTNN has 10MHz in the 800MHz

band which it plans to deploy for LTE sites and for the

improvement of its data network. The company also won

the bid for the 2600MHz frequency licence to support 4G

LTE deployment, underscoring its strategy to improve

data access and network quality.

MTNN is also pursuing new opportunities in Data, Mobile

Money (MoMo) and the renewable energy value chain. In


Chart 18: Major MTNN Milestone Achievements


Chart 19: Historical Subscriber Data (2014-2019) Chart 20: Market Share by Operator (December 2019)

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MTNN Airtel Globacom 9Mobile

MTNN, 37.3%

Airtel, 27.2%

Globacom, 28.0%

9Mobile, 7.4%

2001 - 2004• Acquired GSM 900MHz

and 1,800MHz• Reached 1m

subscribers• Established MTNN

foundation

2005 - 2007• Launched fibre network• Reached 10m

subscribers• Obtained 3G spectrum• Awarded unified licence

2010• Commissioned one of

the largest switching centres in Africa

2013• Reached over 50 million

subscribers

2014• Sold 9k towers to IHS

driving operational improvements

• Launched MFS (YDFS)

2015• Acquired 700MHz

spectrum from NBC• Launch of MTN Music+

2016• Visafone acquisition• Obtained 2.6GHz

spectrum• Launch of 4G service in

Lagos, Abuja & Port Harcourt

2017• Modernised subs

definition• Launch of customer

VAS subscription self-management service

2018 - 2019• Obtained a Super Agent

approval-in-principle• Transfer of 800MHz

acquired from Visafone• Became a publicly-

listed company


Company Analysis

Chart 21: Spectrum Licences Held by MTNN


Source: MTNN, Stanbic, Afrinvest Research

Chart 22: SWOT Analysis for MTN Nigeria

Spectrum Acquisition Frequency Band/Bandwidth Current/Future Usage

Acquired WiMAX in 2007 3,500MHz / 30MHz Fixed Broadband Services

Acquired 2007 and renewed 2015 2,100MHz / 10MHz MBB services, WCDMA

Renewed in 2014 1,800MHz / 15MHz

Voice and GSM services and potentially

MBB, WCDMA, Mobile LTE broadband

services

Renewed in 2014 900MHz / 5MHz

Voice and GSM services and potentially

MBB and WCDMA services

Acquired in 2015 700MHz / 10MHz

Mobile LTE broadband services, Digital TV

Broadcast, Video on Demand service

Acquired via takover in 2016 800MHz / 10MHz

Mobile and potentially, Fixed LTE

broadband services

Acquired in 2016 through auction 2,600MHz / 30MHz Mobile LTE - broadband services


Ownership Structure

(Mauritius) Limited 76.08%, Stanbic IBTC Asset Manage-

ment Limited 9.64%, Nigerian shareholders 9.65%,

Victor Odili 3.96%, Mobile Telephone Network 2.75%,

Government Employees Pension Fund (represented by

Public Investment Corporation SOC Limited) 1.75% and

others 0.13%.

key objectives of delivering best-in-class customer experi-

ence, optimising operating costs and returns, growing

subscriber base, boosting digital & data capacity and

achieving employee satisfaction & technology excellence.

Company Analysis


Chart 23: Ownership Structure of MTN Nigeria


MTN International (Mauritius) Limited,

76.08%

Nigerian Shareholders,

9.65%

Stanbic IBTC Asset Management

Limited, 9.64%

Mobile Telephone Networks NIC B.V.,

2.75%

Public Investment Corporation SOC Limited, 1.75% Others, 0.13%

NCC Fine on MTNN

Industry operators have had instances of not meeting

regulatory directives which has resulted in sanctions.

However, the penalty suffered by MTNN stood out major-

ly because of the impact on its profitability. In 2015, the

NCC imposed a $5.2bn fine on MTNN for not complying

section 20(1) of the Telephone Subscribers regulation

(TSR) law, MTNN was sanctioned for not disconnecting

SIMs with improper registration. A compliance audit was

carried out by NCC which revealed that the lines of 5.2

million unregistered customers were active. This led to

the NCC fining MTNN with $1000 for each unregistered

SIM, amounting to $5.2bn (₦1.0tn) at the first instance.

However, the fine was reduced to $3.9bn (₦780.0bn) in

December 2015 by the NCC, after taking into considera-

fine was further reduced to $1.7bn (₦330.0bn), as MTNN

agreed to list on the Nigeria Stock Exchange (NSE). These

agreements have been fulfilled by MTNN with the Listing

of 20.3 billion Shares in May 2019.

These sanctions had major implication on profitability,

especially in 2015 as the company reported a pre-and

post-tax loss of ₦30.8bn and ₦80.3bn respectively. The

regulatory fine continued to weigh on profits until the

regulatory issues highlight the importance of compliance

and corporate governance which is being enhanced to

mitigate regulatory risk.

Chart 24: Fine Payment and Impact on PBT

Source: MTN Group, NCC, Afrinvest Research

(12.3)

126.7 107.9

221.3

290.1

37.7

156.7 137.9

331.3

400.1

(50.0)

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250.0

300.0

350.0

400.0

450.0

2015 2016 2017 2018 2019

PBT including fine (₦'bn) PBT excluding fine (₦'bn)

-wide strategy has been driving

in recent years. The effort towards improving operating

vestment of its ownership of about 9,151 network of

towers (worth $2.0bn) across Nigeria to IHS Holdings. The

deal saw the creation of a new vehicle jointly owned by

MTN Group and IHS, although IHS was tasked with opera-

tional control of the business venture. Consistent with

ment with IHS is beneficial because, with the burden of

maintaining and servicing tower operations lifted, MTN

Nigeria could increase focus on its core operation of

providing services and new product offerings to its cus-


product optimisation and improved services demand in

Nigeria has resulted in improved Average Revenue per

User (ARPU).

By segments, the share of date revenue has increased

significantly from 11.8% in 2013 to 18.8% in 2019, be-

coming a key driver of revenue growth. Data revenue

expanded faster at a 7-year CAGR of 12.9% to ₦219.4bn,

Company Analysis

far ahead of a CAGR of 3.5% to ₦725.4bn from voice, re-

flecting the massive usage of internet services over the

period. Additionally, the impressive growth in data reve-

ucts, increased investment in 3G and 4G LTE sites (15.7k

and 9.7k 3G and 4G sites cumulative) and the shift in con-

sumer demand to data related services. Evidently, data

subscriber rose at a 7-year CAGR of 10.1% to 125.7 mil-

lion.

Voice revenue, which had been pressured since 2015, part-

ly due to the economic recession and also changing mar-

ket structure with the increased prevalence of Voice over

Internet Protocol (VoIP) platforms, recovered sharply in

2017 as the economy improved, and further increased in

2018 and 2019. Outgoing Minutes of Use (MOU) per

month rose at a 7-year CAGR of 4.0% to 133 minutes,

Chart 26: Revenue Progression in ₦ 2024)


tomers.

In terms of customer experience, MTNN was ranked sec-

ond in Nigeria from third in the prior year with a Net

Promoter Score (NPS) of 13.0%. MTNN has remained in-

novative and become a leader in the adoption of new

technologies and services such as 4G and Mobile Money

which is on the rise in Africa. Given the increasing de-

mand for data services relative to voice services in Nige-

competitive advantage given better infrastructure than

other players. MTNN was one of the first to roll out 4G

services in Nigeria and its network speed is fast. 15,657

and 9,696 3G and 4G sites were rolled out as at 2019

while data usage per user marginally inched higher by

0.2x and data revenue rose 42.3% y/y. With the growing

demand for high speed data services, we believe that

MTNN would continue to leverage on emerging technol-

ogies to improve network speed and connectivity as well

as expanding its coverage area.

Furthermore, a fast emerging opportunity which we see

for MTN Nigeria is Mobile Money. In addition to facilitat-

ing mobile services for banks, the Company launched its

the adoption of its cashless policy. The case of M-Pesa, a

mobile phone-based money transfer, financing and mi-

crofinancing service, launched in 2007 by Vodafone for

Safaricom and Vodacom in Kenya and Tanzania, serves as

a proxy for the prospect of MTN Mobile Money in Nige-

ria.

Financial Performance

Data and Digital Services Underpin Revenue Growth

Strategy

At a 5.7% CAGR, MTNN grew revenue to ₦1.2 trillion in

2019 from ₦793.6 billion in 2013. This feat was driven

mostly by a 2.8% CAGR jump in subscriber base to 68.8

aggressive marketing spend, operational flexibility and

service quality has been supportive of the growth in sub-

scriber base. Despite macroeconomic downturn, regulato-

ry pressure and increased competition which impacted

negatively on revenue between 2015 (₦807.4bn) and

2016 (₦793.7bn), we note the swift rebound in revenue

growth in 2017 by 11.8% to ₦887.2 billion. The rebound

is driven by a 9.6% and 72.1% jump in voice and data

revenue respectively. The resilient revenue growth, de-

spite decline in subscribers (-15.6% to 52.3m in 2017),

highlights the operational flexibility and scope of the

nearly 18-year old company to continually optimize its

Chart 27: ARPU in Nigeria (Q1:2014 Q4:2018)


900.0

1,000.0

1,100.0

1,200.0

1,300.0

1,400.0

1,500.0

1,600.0

ARPU (₦)

0.9

1.0 1.2

1.3 1.5

1.6

1.8

2.0

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

-

0.5

1.0

1.5

2.0

2.5

2017 2018 2019 2020F 2021F 2022F 2023F 2024F

Revenue (₦'tn) Y-o-Y Growth


Relatively Stable COS and OPEX

operating expenses grew at a 7-year CAGR of 13.1% and

5.6% respectively, with COS ahead of revenue growth.

COS comprises of interconnect costs (with the biggest

share of 8.7% of COS on average), discounts and commis-

sions, value added services, blackberry license fee and

cost of handset and other accessories. Notably, as with

most tech companies, MTNN operates with a small share

of cost-to-sale ratio which averaged 16.6% in the last 7

years although it spiked to 23.3% in 2016, while the COS

grew at a 13.1% CAGR. Cost-to-sales ratio was relatively

stable between 2013 and 2015 averaging 11.4% before

surging to 23.3% in 2016 due to a restructuring of the

seeing a decreasing cost trend, although cost-to-sales

ratio averaged 19.6% from 2017-19, 434bps higher than

COS ratio from 2014-16. We expect a slight moderation in

the COS, hence we assumed an 18.0%-18.3% COS ratio

over our forecast period.

Operating expenses ratio (OER) averaged 32.9% while

OPEX grew at a CAGR of 5.6% over a 7-year period. Di-

rect network operating cost contributed the most, aver-

Company Analysis

Chart 29: COS Progression in ₦ 2019)


which broadly drove Voice Revenue segment amidst ag-

gressive price competition in the industry. Voice still ac-

counts for the largest share of revenue, contributing

65.9% on average over the past 7-years vs. 62.0% in

2019.

In FY:2019, revenue rose 12.6% Y-o-Y to ₦1.2tn, support-

ed by a 42.4% increase in data revenue, an 8.4% expan-

sion in voice revenue and a 23.3% jump in Fintech.

Growth in voice revenue was driven by an increase in

subscribers to 64.3m, reflecting a 10.5% rise in net addi-

tions, and an increase in voice traffic by 7.6%. Fintech

revenue growth was driven by increased adoption of

MTN Xtratime and the launch of their super-agent service

Chart 30: OPEX Progression in ₦ 2019)


with digital subscriptions surpassing 2.1 million users.

Management expects revenue from its Nigerian unit to

maintain double digits growth in the medium term, sup-

ported by the implementation of its BRIGHT strategy

which is hinged on data and digital service growth. Data

revenue remains the main focus of growth as the compa-

ny seeks to expand its 4G network coverage to deliver

high-speed internet to a higher share of the population.

Voice revenue is expected to remain healthy. In the same

vein, the company expect to expand its super-agent net-

work which would broaden financial inclusion as they

await the payment service bank (PSB) licence.

Moving forward, we expect revenue to grow at a 5-year

CAGR of 8.3%, driven by Data, Voice, Fintech and Digital

segment. Voice segment would be driven by increase in

subscribers (estimated net add of 13.2m in five years) as

well as an increase in Outgoing Minutes of Use. Data seg-

ment would be buoyed by rising data usage estimated to

grow to 1,249 MB per user in 2024 from industry average

of 1,177mb/user in 2018 as well as increase in active users.

In addition, progress in digital services following the com-

pletion of Value Added Services (VAS) optimization, ac-

quisition of super-agent licence as well as the launch of

5G network would support revenue.

Chart 28: Share of Revenue by Segment (2015 2019)


66.7% 64.0% 59.6%65.6% 62.0%

10.2%8.6% 17.9%

14.8% 18.8%

11.7%12.7%

11.1% 9.9% 10.7%8.0% 11.0% 7.4% 3.9% 3.1%3.3% 3.7% 4.1% 5.8% 5.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2015 2016 2017 2018 2019

Voice revenue Data revenue Interconnect and Roaming Digital Others

-1.3%

102.1%

-10.5%

2.8%10.2%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

200.0

2015 2016 2017 2018 2019

Cost of Sales (₦'bn) Growth (%)

11.6%

-10.2%

48.2%

11.4%

-15.7%-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2015 2016 2017 2018 2019

Operating Expenses (₦'bn) Growth (%)


decline, down 17.5% due to the adoption of IFRS 16

which required the reclassification of BTS (Base Transceiv-

er Station) leasing cost as part of finance cost. Over the

next five years, we expect total cost to grow at a CAGR of

2.9% with COS growing at a CAGR of 7.1% and OPEX

falling at a CAGR of 0.2%, following the adoption of IFRS

16 from IAS 17.

Steady Rise in CAPEX and AFCF

Capital expenditure (CAPEX) is comprised of network, IT

and other CAPEX, with network having a share of 80.0%.

Between 2013 and 2019, CAPEX intensity averaged 20.5%

and fell at a CAGR of 1.8%. Before the low 16.4% aver-

age CAPEX intensity in 2014-2015, CAPEX intensity was

high at 29.0% as MTNN invested over ₦215.0bn to scale

up 3G network capability and coverage. Due to the unfa-

vorably state of the company resulting from NCC fine,

CAPEX intensity fell drastically in 2014-2015 but increased

consistently afterwards to 22.7% in 2017. We attribute

the increase to favourable cash flow position. This is also

seen in the acquisition of 2.6GHz spectrum leading to the

launch of 4G network in Lagos, Abuja and Port-Harcourt

in 2016.

Company Analysis

aging 17.8% while growing at a 7-year CAGR of 16.3%.

However, direct network operating cost to sales declined

from 26.7% in 2018 to 18.1% in 2019. Historically, OPEX

margin has grown continuously until 2016 when it de-

clined following a restructure in the financial statement

in accordance with accounting standards. However, in

2017, OER surged 39.0% y/y to ₦352.3bn from ₦253.4bn

before declining continuously.

The dollar denominated portion of leases and mainte-

nance costs are additional cost pressure points for MTNN

following various currency devaluation episodes in Nige-

ria. There was a 27.1% y/y jump in maintenance cost to

₦11.4bn in 2017 due to Naira devaluation and increase in

the number of sites. This resulted in EBITDA Margin fall-

ing to 39.0% from 47.4% in 2016.

Another major driver of cost is the regulatory fine im-

posed on the company in 2012 (₦360.0m) and 2015

(₦330.0bn). We believe the regulatory risk could continue

to impact performance if the Company fails to tighten its

corporate governance framework.

In 2019, total cost fell 8.2% y/y to ₦539.9bn from

₦588.2bn driven by a reduction in non-recurring expens-

es. Direct network operating costs contributed to the

Chart 31: Composition of COS (2016 2019)

Source: MTNN, Afrinvest Research

Chart 32: Composition of Operating Expenses (2016 2019)


63.8%72.3% 71.4% 67.7%

9.6%6.7% 7.0% 9.8%

7.3%4.6% 4.2% 6.3%

19.2% 16.4% 17.4% 16.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2016 2017 2018 2019

Other Operating Expenses

Advertisements, Sponsorship and Sales Promotions

Employee Benefits

Direct Network Operating Cost Chart 33: CAPEX and CAPEX Intensity (2013 2019)


29.0%

16.9%15.8%

21.1%

22.9%

20.3%

17.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0.0

50.0

100.0

150.0

200.0

250.0

2013 2014 2015 2016 2017 2018 2019

CAPEX (₦'bn) Capex Intensity

However, capital intensity moderated to 20.3% and

17.3% in 2018 and 2019 respectively following double

digit growth in revenue and a lack of growth in CAPEX in

2019. This also led to a 91.9% surge in Adjusted Free Cash

Flow (AFCF) to ₦427.2bn from ₦222.7bn. Moving forward,

MTNN plans to invest about ₦600.0bn in network to ena-

ble the company accelerate 4G expansion, deepen popu-

tive. As a result, we expect CAPEX to rise steadily and

with the goal of sustaining a double digit revenue

growth, AFCF would gradually rise as well.

41.2% 44.7% 48.6% 48.4%

23.9% 24.3%26.0% 26.0%

18.6% 15.0% 8.5% 5.7%

10.9% 12.4% 13.8% 13.9%3.1%

-0.1%

0.0% 0.0%

2.3% 3.8% 3.1% 5.9%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2016 2017 2018 2019

Interconnect Costs Discounts and Commissions

Value Added Services Regulatory Fee

Blackberry License Fee Cost of handset and other accessories


Company Analysis

EBITDA Margin Expands on Double-Digit Growth in Rev-

enue and Low Costs

MTNN operates with a high EBITDA margin which has

averaged 45.6% over the years. The main EBITDA drivers

have been low operating cost and strong revenue.

EBITDA margin have moderated from 60.6% in 2013 to

an average of 47.8% between 2018 and 2019. This mod-

eration captures the impact of the fines from the regula-

tory sanctions, and cost pressure which are connected to

devaluation losses. Given the relative stability in the FX

environment, coupled with the adoption of IFRS 16, 2019

EBITDA margin rose 12.2 percentage points to 53.9%

driven by a double-digit growth in revenue (up 12.6% y/

y). This was also driven by an 8.2% decline in costs stem-

ming from the adoption of IFRS 16 which affected direct

network operating cost and a reduction in value added

services, roaming costs and other operating expenses.

Hence, EBITDA grew 45.2% y/y to ₦629.9bn from

₦434.0bn in 2018. Management guided that it expects

EBITDA margin to stay above 40.0% levels in 2020 despite

the outbreak of coronavirus (COVID-19) and its impact on

supply chain, as it explores multiple scenarios in a bid to

mitigate the impact.

2019)


Net Debt to EBITDA Moderates

The gross debt of MTNN as at 2019 was ₦412.5bn. This

represents a surge of 135.3% y/y from ₦175.3bn in 2018

and a 7-year CAGR of 1.3%. As at end of 2019, 91.8% of

gross debt was in local currency and 8.2% in foreign cur-

rencies, compared to a 48.6% vs. 51.4% split in 2018.

There was a change in debt composition as the company

borrowed ₦378.6bn to pay off its foreign debts. MTNN

relied heavily on local funding in 2019 in order to reduce

FX exposure and mitigate the impact of exchange rate

volatility.

-

2018, peaking at 0.86x in 2015 due to NCC fine. MTNN has

historically maintained moderate net debt to EBIDTA re-

maining in a comfortable position relative to previous

metrics. As at 2019, net debt to EBITDA stood at 0.4x, up

0.2x from 0.3x recorded in 2018 compared to its peer,

Chart 35: EBITDA Trend (2015 2019)


158.8

376.1 346.4

434.0

629.919.7%

47.4%

39.0%41.8%

53.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2015 2016 2017 2018 2019

EBITDA (₦'bn) EBITDA Margin (%)

376.9393.2

336.8

289.8

255.4

175.3

412.5

42.2 47.9 54.641.3 46.2 36.4

47.0

187.5% 229.7%

-3073.8%

370.8%226.3%

79.9%285.1%

-3500.0%

-3000.0%

-2500.0%

-2000.0%

-1500.0%

-1000.0%

-500.0%

0.0%

500.0%

1000.0%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2013 2014 2015 2016 2017 2018 2019

Gross Debt (₦'bn) Interest Coverage (₦'bn) Gross debt to Equity (%)

2019)


Chart 34: Comparison of CAPEX, EBITDA and AFCF (2013 2019)


251.33

339.99

31.02

208.91

143.06

222.66

427.19

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2013 2014 2015 2016 2017 2018 2019

CAPEX (₦'bn) EBITDA (₦'bn) AFCF (₦'bn)

0.48

0.39

0.86

0.38

0.48

0.28

0.47

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2013 2014 2015 2016 2017 2018 2019

Net Debt (₦'bn) EBITDA (₦'bn) Net Debt to EBITDA (x)


Company Analysis

Airtel Africa (net debt to EBITDA: 3.0x). This is as a result

of a surge in net debt of 142.2% y/y to ₦296.3bn from

₦122.3bn in 2018 as EBITDA grew 45.2% y/y to ₦629.9bn

in 2019. Moving forward, we expect net debt to EBITDA

to remain below 2019 level, between 0.35x 0.45x.

Steady Profitability Growth

After the 2015 loss resulting from the NCC fine, MTNN

rebounded to profitability in 2016 and have maintained

consistent growth though absolute profitability levels

remain below 2013 levels. Apart from historical cost driv-

ers discussed above, earnings have been pressured by

increasing net finance costs (which stood at ₦105.2bn in

2019 from ₦28.6bn in 2013). From 39.2% and 27.4% in

2013, pre- and post-tax-profit margin have contracted to

24.8% and 17.3% respectively in 2019 though still above

the 21.0% and 13.5% average over the period. In terms

of growth, both pre-and post-tax profit fell at a 7-year

CAGR of 1.0% apiece to ₦290.1bn and ₦202.1bn respec-

tively in 2019, reflecting the contraction in profitability

margins.

Nonetheless, at the end of 2019, PBT and PAT grew

31.1% and 38.7% respectively on the back of double-

digit growth in revenue and decline in costs. Relative to

revenue, net margin stood at 17.3% compared to 14.0%

in 2018. We believe the company continues to leverage

on its strong brand presence, its resilience in a challeng-

ing operating environment and the implementation of its

BRIGHT strategy.

For 2020, we project a 49.1% growth in bottom-line un-

derpinned by a muted COS ratio (18.3%) and OER

(25.6%). Also, given that MTNN completed payment on

the NCC fine in 2019, we expect to see increased retained

earnings. We forecast a 5-year CAGR of 13.6% in bottom-

line on the back of a moderation in COS ratio, OER and

depreciation & amortisation. The adoption of IFRS 16

which affect recognition and reporting will reduce fi-

nance charges.

(excluding 2015 following the loss after tax). Our ROE

forecast for 2020 indicates a moderation to 93.8% and a

further decline to 78.2% for 2021-24. This is higher com-

margin averaged 13.5% between 2013 and 2019 peaking

at 27.4% in 2013, though it later contracted to -9.9% in

2015 as the regulatory fine took a toll. We forecast net

margin to maintain a steady increase improving to 23.3%

and 26.3% in 2020 and 2021 respectively.

2019 indicating a strong asset conversion when compared

to peers within the industry. However, between 2015 and

2016, growth in asset did not translate to growth in reve-

nue. Nevertheless, between 2017 and 2018, revenue grew

substantially by 11.8% and 17.4% respectively, despite a

decline in total asset. We forecast an improvement in as-

set turnover to average 0.88x between 2020 and 2024,

based on expected improvement in revenues over the

forecast period, peaking at 0.90x in 2023 and 2024.

Also, financial leverage ratio (equity multiplier), comput-

ed as total assets to net assets improved from 4.8x in 2013

to 5.7x in 2014. However, in 2015, leverage entered the

negative region (-90.6x) following losses incurred, but

propelled back at 13.1x in 2016 and declined consistently

to 8.6x and 4.3x in 2017 and 2018 respectively. In 2019, it

grew to 10.5x. We forecast leverage to average about

3.6x between 2020 and 2024, with leverage falling to 4.7x

Chart 38: PAT Progression in ₦ 2024)


-8.7%

79.7%

38.7%

50.3%

23.2%

16.5% 14.4% 15.7%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2017 2018 2019 2020F 2021F 2022F 2023F 2024F

PAT (₦'bn) Growth

Chart 39: MTNN’s DuPont Estimations


2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f

ROE 122.1% 732.8% 113.6% 71.8% 66.4% 139.7% 93.8% 91.7% 87.1% 83.4% 78.2%

Net Profit Margin 25.3% -9.9% 11.2% 9.1% 14.0% 17.3% 23.3% 26.3% 28.3% 29.9% 31.8%

Asset Turnover (x) 0.84 0.81 0.77 0.91 1.11 0.77 0.86 0.87 0.88 0.90 0.90

Leverage (x) 5.71 -90.62 13.14 8.59 4.29 10.54 4.67 4.00 3.49 3.09 2.74


Company Analysis

Discounted Free Cash Flow (DFCF)

Under this approach, our forecast is underpinned by a ₦1.4tn CAPEX over the next five years, 56.8% higher compared to

sent value of expected free cash flow translates to ₦196.91k.

in 2020. Thereafter, leverage is expected to decline consistently to 2.7x in 2024.

Valuation

Against the backdrop of our positive outlook for the industry, we believe MTNN is well positioned to enjoy the benefits

of industry growth prospects. We expect the company would grow perpetually at 4.5% based on a ₦600.bn investment

in network and superior revenue growth rates above peer. To value the company, we used a blend of absolute valuation

methodology including the Discounted Free Cash flow method, Dividend Discount Model and Residual Income Method

with a weighting of 50%, 25% and 25% in that order. We arrived at a 12-month target price of ₦147.67k which trans-

lates to an upside potential of 28.4% at the current market price of ₦115.00k (22-May-

rating on the stock. Details of each methodologies are presented below.


Chart 41: MTNN’s Discounted Free Cash Flow


Blended Absolute Valuation

FCF 50.0%

DDM 25.0%

Residual Income 25.0%

12-Month Target Price (NGN) 147.67

Upside/(Downside) 28.4%

Rating BUY

Discount Period 1 2 3 4 5

Discount Rate 14.2% 14.2% 14.2% 14.2% 14.2%

Discount Factor 0.88 0.77 0.67 0.59 0.52

Discount FCFs 259,878.95 277,459.80 203,567.17 270,163.88 253,551.26

Present Value of Terminal Dividend 2,743,369.80

Total PV of Cash Flows (₦'m) 4,007,991

Shares Outstanding (in m) 20,354.5

Price/Share (NGN) 196.91

Price/Share (USD) 0.55


Company Analysis

Dividend Discount Model (DDM)

For our valuation assumptions, we adopted a risk-free rate of 10.5% in line with average yield on the 10-year FGN bond

sistent dividend payout policy, we maintained an 80.0% payout ratio and 4.5% growth rate over our forecast horizon.

₦101.35k.

Residual Income Method

To arrive at our residual income, we derived our residual rate of return by subtracting cost of equity (25.0%) from ROE

and then multiplied it by our book value per share. The forecast residual income was discounted to the present using the

₦95.52k.


Chart 42: MTNN’s Dividend Discount Method


Chart 43: MTNN’s Residual Income Method

Dividend Discount Method

FY19 FY20 FY21 FY22 FY23 FY24

Earning per share 9.93 14.92 18.38 21.42 24.51 28.35

% y-o-y growth 38.7% 50.3% 23.2% 16.5% 14.4% 15.7%

Dividend per share 12.82 11.94 14.70 17.13 19.61 22.68

Dividend Pay out Ratio 129.1% 80.0% 80.0% 80.0% 80.0% 80.0%

Discount Period - 1 2 3 4 5

Discount Factor 1.00 0.80 0.64 0.51 0.41 0.33

Discounted Dividend 12.82 9.55 9.41 8.77 8.03 7.43

PV of Dividends 43

PV of Terminal Dividend 38

Target Price (NGN) 101.35


FY19 FY20 FY21 FY22 FY23 FY24


% y-o-y growth 38.7% 50.3% 23.2% 16.5% 14.4% 15.7%

Opening Book Value per share 13.94 11.70 15.38 19.66 24.57 30.24

% y-o-y growth - -16.0% 31.4% 27.9% 24.9% 23.1%

ROE 139.7% 127.5% 119.5% 108.9% 99.8% 93.8%

Residual Rate of Return 114.7% 102.5% 94.5% 83.9% 74.8% 68.8%

Residual income 15.99 12.00 14.53 16.50 18.37 20.79


Discount Factor 1.00 0.80 0.64 0.51 0.41 0.33

Discounted RI 15.99 9.60 9.30 8.45 7.52 6.81

PV of Residual Income 41.69

PV of Terminal Residual Income 34.73

Target Price (NGN) 95.52


Section Five

Company Analysis:

Airtel Africa Plc


Airtel Africa Plc

Company Profile

Overview

In 2010, Bharti Airtel Limited acquired the African opera-

tions of the Zain Group (formerly Mobile Telecommunica-

tions Group) headquartered in Kuwait, which comprised

of 36 million subscribers operating in 15 countries, includ-

-country footprint. With-

in the same year, the Group acquired Telecom Seychelles

Limited, thereby acquiring 57.0% of the Seychellois sub-

scriber base. From 2012 to 2013, the Group expanded its

mobile tower infrastructure), Uganda (Warid Telecom

Uganda) and Congo (Warid Congo SA). Between 2015

and 2016, the Group further optimised its portfolio in

Kenya from Essar Group and sold its operations in Burki-

na Faso and Sierra Leone. From 2017 onwards, the com-

pany has consolidated its position in Ghana, Kenya and

Rwanda to rival competitors in those markets. Additional-

ly, its subsidiary, Airtel Africa, listed on the London Stock

Exchange (LSE) and Nigerian Stock Exchange (NSE) in

2019.

iary of Bharti Airtel and a leading telecommunication

company with presence in 14 countries in Africa, mostly

in Central, East and West Africa. The Group offers an in-

tegrated suite of telecommunication solutions, including

mobile voice, data services and mobile money both do-

mestically and internationally. With the expansion of its

3G and 4G networks, there have been increased focused

on data and non-voice services, although mobile voice

remains its main source of revenue. Another stream of

revenue for Airtel is its mobile money services which it

serves across all the 14 countries of operations, delivering

population. Also, the Group deploys, leases, owns and

manages tower infrastructure and fibre cables. Further-

more, the Group aims to roll out fixed wireless broad-

band solutions, B2B offerings & fibre sharing and build

further content partnerships.

Ownership Structure

Airtel Africa is part of the Bharti Airtel group, a leading

global telecommunications company with (together with

the Group) presence in 18 countries across Asia and Afri-

ca. Bharti Airtel Limited, a member of the Bharti Airtel

Company Analysis

One Year Trajectory of NSEASI & AIRTELAFRI

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

270.00

290.00

310.00

330.00

350.00

370.00

390.00

410.00

Jul-1

9

Jul-1

9

Au

g-1

9

Au

g-1

9

Se

p-1

9

Se

p-1

9

Oct

-19

Oct

-19

Oct

-19

Nov-1

9

Nov-1

9

Dec-1

9

Dec-1

9

Jan

-20

Jan

-20

Feb-2

0

Feb-2

0

Mar-

20

Mar-

20

Mar-

20

Ap

r-20

Ap

r-20

May-

20

AIRTELAFRI NSEASI

AIRTELAFRI Shareholding Structure

Airtel Africa Mauritius, 56.0%

Indian Continent Inv, 7.8%

Singapore Telecom In, 5.5%

Warburg Pincus Llc, 5.0%

Others, 23.9%

Rating BUY

Share Price (₦) 298.90

2020/21 TP (₦) 419.53

Upside Potential (%) 40.4%

52 Wks High (₦) 399.30

52 Wks Low (₦) 283.50

Outst. Shares (bn) 3.8

Free Float (%) 17.7%

Mkt Cap (₦'tn) 1.1

Mkt Cap (US$'bn) 3.1

FY:2018 FY:2019 2020F

Revenue ($'bn) 2.9 3.1 3.3

EBITDA ($'bn) 1.1 1.3 1.4

Net Profits ($'m) (134.0) 450.0 451.8

EPS, $ (0.12) 0.21 0.11

PE Ratio (x) - 4.0 7.1

EV/EBITDA (x) 5.7 3.3 3.8

Dividend Yield - - 11.3%

Trading Data - May 22nd, 2020 (AIRTELAFRI)

Profitability and Valuation Metrics ($)

Source: Company Filings, NSE


Company Analysis

Chart 44: SWOT Analysis for Airtel Africa


share Pre-IPO, with the group of investors participating in

the Pre-IPO Funding collectively holding 31.7%. Post-IPO,

Bharti Airtel Limited currently holds 56.0% of the Compa-

each of the jurisdictions in which it operates, which typi-

cally comprise a primary in-country network operating

-

country mobile money services and a subsidiary in respect

-country tower portfolio, where the

-country tower assets are held. As at the date

(see chart 46).

Business Operating Model and Products

lation

Airtel Africa runs a business model with footprints across

14 African countries, comprising of Nigeria, East Africa

(Kenya, Uganda, Rwanda, Tanzania, Malawi, Zambia) and

Rest of Africa (Niger, Gabon, T Chad, Congo, DRC, Mada-

gascar, Seychelles). The Company has a well-diversified

subscriber base comprising of 98.9 million subscribers

(voice and data combined) and 14.2 million mobile money

customers across its countries of operation as at 31 March

2019. The Group had positive net additions of 12.6 million

in FY:2018 and 9.6 million in FY:2019. Of these, Nigeria

base, comprising 37.6% of the total subscribers as at 31

Chart 45: Subscribers by Region

Source: Bharti Airtel, Afrinvest Research

Nigeria, 37.6%

East Africa, 43.4%

Rest of Africa, 19.1%


Company Analysis


March 2019, with 43.4% of subscribers in East Africa and

Rest of Africa contributing 19.1%.

Growth Recorded across Countries of Operation

In the year ended 31 March 2019, revenue in Nigeria was

$1.1bn representing 35.9% of revenue with underlying

EBITDA of $550.0m. Revenue in East Africa was $1.1bn

(representing 35.8% of revenue) and Underlying EBITDA

was $442.0m while revenue in Rest of Africa was $888.0m

(accounting for 28.9% of revenue) and Underlying

EBITDA was $339.0m. As at March 31, 2019, Nigeria,

Uganda, DRC, Zambia, Tanzania and Kenya were the

largest contributors to revenue representing 36%, 10%,

9%, 7%, 7% and 6% respectively while in terms of

EBITDA, Nigeria, Uganda, DRC, Zambia, Tanzania and

Kenya led with 41%, 14%, 10%, 7%, 4% and 3% respec-

tively.

Data and Mobile Money Buoy Growth as Voice Moder-

ates

Airtel Africa offers three major services to subscribers

across 14 countries namely, voice, data and mobile mon-

ey. Over the last 3 years, voice revenue averaged 66.1%

of total revenue, data averaged 19.1% while mobile

money averaged 5.6%. The balance is grouped under

other revenue sources (9.2%). Voice revenue has been

declining compared to data and mobile money that have

witnessed growth.

Voice: This comprises of pre and post-paid wireless voice

services, international roaming, fixed-line telephone ser-

vices and interconnect revenue. On a constant currency

basis, voice revenue grew at a CAGR of 1.4% from

FY:2017 to FY:2019. This was supported by a growth in

subscriber base of c.22.2 million and an increase in voice

usage per user of 6.1% CAGR. Voice average revenue per

user (ARPU) trended to $1.69 per user in FY:2019 from

$2.25 per user in FY:2017. Contribution to revenue fell to

66.2% in FY:2019 from 69.7% recorded in FY:2017 as

data and mobile money gained significantly over the

period.

Chart 47: Revenue by Country


Chart 48: EBITDA by Country


344 405550

307

385

442182

341

339

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

2017 2018 2019

Nigeria East Africa Rest of Africa

982 989 1,106

1,003 1,019 1,102

925 919 888

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

2017 2018 2019


0.000000056%(1 share)

0.000000324%

Bharti Airtel Limited("Bharti Airtel")

Network i2i Limited("Ni2i")

Airtel Africa Mauritius Limited

("AAML")

Airtel Africa Plc("the Company")

Bharti Airtel International (Netherlands) B.V.

("BAIN")

Pre-IPO Investors

• Airtel Congo S.A. (90.0%)• Airtel Gabon S.A. (97.95%)• Celtel Niger S.A. (90.0%)• Airtel Networks Ltd (Nigeria) (91.7%)• Airtel Congo RDC S.A. (98.5%)• Airtel Tanzania Plc (51.0%)• Airtel Networks Zambia Plc (96.4%)• Airtel Networks Kenya Limited

(c.68.0%)• Airtel Tchad S.A. (100%)• Airtel Madagascar S.A. (100%)• Airtel Malawi Limited (100%)• Airtel Rwanda Limited (100%)• Airtel Uganda Limited (100%)• Airtel (Seychelles) Limited (100%)

100%

68.31%

100%

100%

31.69%


vious year as data and mobile money delivered robust

growth. Growth in mobile voice was buoyed by an accel-

erated growth in voice usage from 9.0% to 11.0%.

Mobile data revenue trailed, contributing 22.2%

($700.0m), a 3.3ppts increase from 18.9% in FY:2018 sup-

ported by an increase in data usage and number of data

subscribers. Airtel Money contributed 7.7% ($243.0m), a

en by an increase in mobile money subscribers of 3 million

from 2 million recorded the previous year. The company

prise, fixed-line revenues, site sharing, handset sales, VAS

revenue, messaging and intercompany eliminations. Oth-

er revenues amounted to $250.0m, equivalent to 7.9% of

total revenue.

In terms of region, Airtel Africa generated 35.9% of reve-

nues from Nigeria, 35.8% from East Africa and 28.9%

from Rest of Africa in FY:2019. Historically, Airtel Africa

has recorded consistent increase only in East Africa from

34.8% in 2017, up 104bps to 35.8% in 2019 while Rest of

Africa has witnessed consistent decline from 32.1% in

2017, down 321bps to 28.9% in 2019. On the other hand,

revenue from Nigeria marginally fell 6bps in 2018 before

propping up 196bps to close at 35.9% in 2019.

Company Analysis

Data: This comprises of data communications services,

including 2G, 3G & 4G data services, and other VAS for

mobile subscribers. On a constant currency basis, data

revenue grew at a CAGR of 17.1% from FY:2017 to

FY:2019, supported by growth in customer base of c.13.1

million and data usage from 617MB/user to 1,091MB/

user. Growth in data usage per user translates to a CAGR

of 20.9%. Data contributed 22.2% to revenue in FY:2019

from 16.1% in FY:2017 due to a shift in consumer de-

mand from voice to data. Data ARPU trended to $2.07

per user in FY:2019 from $2.46 per user in FY:2017.

Mobile Money: Mobile Money services is offered under

the Airtel Money brand and has increasingly become an

prises of a mobile commerce service that is accessible 24

devices. In recent years, Airtel money has significantly

grown, gaining an additional subscriber base of c.5.4 mil-

lion to 14.2 million in FY:2019. Similarly, revenue grew at

a CAGR of 33.6% to $243 million as ARPU grew at a

CAGR of 13.8% to $1.49 over the same period. Addition-

ally, transaction value grew from $14.7m in FY:2017 to

$25.1m in FY:2019.

Financial Performance

Revenue Growth Underpinned by Voice, Data and Mo-

bile Money

Between 2017 and 2019, Airtel Africa grew revenue at a

CAGR of 2.2%, driven by an 8.8% CAGR jump in subscrib-

er base to 98.9 million from 76.7 million, a 1.4% CAGR in

voice, 17.1% CAGR in data and 33.6% CAGR in mobile

($167.0m) to $3.1bn from $2.9bn in the previous year,

driven by growth in mobile data and Airtel Money. A

breakdown shows that mobile voice was the largest com-

basis, contributing 62.2% ($2.0bn) from 66.4% in the pre-

Chart 49: Revenue by Segment (2017 - 2019)


2024)


Chart 51: Revenue by Segment 2019


69.7% 66.3% 62.2%

16.1% 18.9% 22.2%

3.8% 5.4% 7.7%10.3% 9.5% 7.9%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

2017 2018 2019

Mobile Voice Mobile Data Mobile Money Others

0.9%

5.7%

6.4%

5.8% 5.7%

6.2% 6.3%

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

2017 2018 2019 2020F 2021F 2022F 2023F 2024F

Revenue ($'m) Growth (%)

62%

22%

8%

8%

Mobile Voice Mobile Data Mobile Money Others


needed for the acquisition of new networks, expansion or

improvement of existing networks, renewal of licences

and roll-out of new services. Between 2017 and 2019, the

CAGR from $395.0m in FY:2017 to $630.0m in FY:2019.

CAPEX intensity increased to 20.5% in 2019 from 13.7% in

declining since 2017 and currently stands at 17.3% as at

2019. Management reported that the increase in CAPEX

was due to an expansion and modernisation of its mobile

network coverage and capacity to accommodate the in-

creases in usage, which requires the purchase of addition-

Company Analysis

Over 2020-24, we forecast a CAGR of 4.6% in revenue to

$4.1bn, to be driven by data and Mobile Money as well as

Voice (although growth would decline). Voice segment

will be driven by increase in subscribers while rising data

usage and increase in active users is expected to support

revenue contribution from the data segment. Mobile

Money should see growth from increase in subscribers,

low penetration of financial services and increasing mo-

bile usage.

Operating Expenses Decline on Cost Optimisation

Airtel Africa operating expenses fell by 4.4% CAGR from

FY:2017 to FY:2019. OER contracted from 71.4%

($2,058.0m) in FY:2017 to 58.4% ($1,796.0m) in FY:2019,

suggesting some increasing efficiency with OPEX man-

agement. Traditionally, network operating expenses ac-

counted for the bulk of OPEX (31.1% in FY:2019) averag-

ing 19.1% between FY:2017-19. Access charges which

reflects interconnect cost trailed, averaging 13.2% as it

declined from 15.5% in FY:2017 to 11.2% in FY:2019. In

addition, other expenses decreased from 13.4% in 2017

to 10.5% in 2019.

initiatives to reduce call centre expenses, redesign of pay-

ment transmission plan in areas of bandwidth cost, stand-

ardisation and volume consolidation, deployment of new

energy-efficient technologies for running base stations,

among others, as the underlying driver to reduction in

OPEX. Moving forward, we expect OPEX to decline stead-

ily averaging 55.7% between FY:2020-24.

Capital Expenditure Expands in Support of Network Ex-

pansion and Modernisation

Given the capital-intensive nature of the telecoms indus-

try, Airtel Africa requires substantial capital investment

Chart 52: Revenue by Country (2017 2019)


2019)


2019)


2019)


395 411

63013.7% 14.1%

20.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2017 2018 2019

Capex ($'m) Capex/Sales (%)

2,058

1,798 1,796

1,600.0

1,700.0

1,800.0

1,900.0

2,000.0

2,100.0

2017 2018 2019

Operating Expenses ($'bn)

572 562 558

447 372 345

181180 182

262232 236

210140 152

386

312 323

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2017 2018 2019

Network Operating expenses Access charges

License fee/spectrum charges (revenue share) Employee benefits expense

Sales and marketing expenses Other expenses

34.05% 33.99% 35.94%

34.78% 35.02% 35.81%

32.07% 31.58% 28.86%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2017 2018 2019



Company Analysis

al spectrum, the expansion of existing infrastructure and

other capital expenditures. In the medium term, manage-

ment expects CAPEX to stabilise around $600.0m and

$700.0m per annum.

EBITDA Margin Expands on Revenue Growth and Stable

OPEX

In FY:2019, Airtel Africa EBITDA grew to $1.3bn from

$1.2bn in the previous year as EBITDA margin expanded

to 43.3% from 39.1%. This as underlying OPEX declined

to 58.4% of revenue in FY:2019 from 61.8% in FY:2018

and revenue expanded 5.7% in the same period. Network

operating expenses (31.1% of OPEX) declined to $558.0m

from $562.0m in FY:2018. In addition, access charges

(19.2% of OPEX) fell from $372.0m to $345.0m signifying

a 7.3% y/y decline. Conversely, license fee/spectrum

charges, employee benefits, sales and marketing expens-

es and other expenses increased but fell as a percentage

of sales over the period. Over the next five years, we ex-

pect EBITDA to grow steadily, peaking at 47.4% in 2024.

This is backed by growth in revenue averaging 6.0% over

the next five years and a decline in OER, especially from

network operating expenses.

Before the advent of the wholly-owned subsidiary, Bharti

jor source of funding for both organic and inorganic ex-

pansions was US-denominated bank loans. With BAIN,

the scale has tipped as major shareholders in BAIN issue

funds to the Group in the form of senior unsecured

which are denominated in US dollars, euros and local

currencies, and lease liabilities. A breakdown of the debt

suggests 9.9% are denominated in local currency, 63.8%

in US dollars, 19.1% in euros and 7.2% in CHF.



Chart 57: Debt Structure


the course of three years from 0.2x in 2017 to 1.8x in

improving, it falls in comparison with MTNN whose inter-

ability to meet interest expense thus far has been de-

pendent on proceeds from IPO and strong EBITDA. Re-

cently, the company listed on the Malawi Stock Exchange.

down 39.0% from $7.9bn in FY:2018. Net debt (gross debt

minus cash and cash equivalents) fell to $4.0bn, a 48.4%

decline from $7.8bn in FY:2018. This was as a result of pre

-IPO cash injection and FCF generation. Furthermore, the

decline in net debts coupled with impressive EBITDA

growth led to a lower net debt to EBITDA at 3.0x in

FY:2019 from 6.8x in FY:2018 placing the Group in a bet-

ter position to meet its debt obligation. After IPO, the

company aims to achieve a net debt to EBITDA range be-

tween 2.0x

EBITDA ratio stood at 2.2x.

Historically, Airtel Africa have suffered losses on the back

of huge operating expenses, high finance costs and de-

preciation and amortization. From FY:2017-18, earnings

were pressured by high finance cost that peaked at

$855.0m in 2017 before falling to $590.0m and $447.0m

in 2018 and 2019 respectively. Finance cost averaged

21.5% relative to revenue between FY:2017-19. Similarly,

depreciation and amortisation weighed on profit, averag-

ing 20.5% relative to revenue over a 3-year period but

has fallen subsequently, down 4.26ppts to 18.6%. Conse-

quently, loss before tax and loss after tax moderated to

$9.0m and $134.0m in FY:2018 from $652.0m and

$769.0m in FY:2017 respectively.

842

1,139 1,332

1,415 1,539

1,670 1,804

1,957

29.20%

39.14%

43.29% 43.23% 44.46% 45.64% 46.45% 47.44%

-5.0%

5.0%

15.0%

25.0%

35.0%

45.0%

55.0%

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

2017 2018 2019 2020 2021 2022 2023 2024

EBITDA ($'m) EBITDA Margin (%)

2019 2018 2017

Term Loans 316 371 308

Non-convertible bonds 2,680 4,968 4,742

Lease liabilities 1,218 1,230 1,291

Overdraft facilities 216 183 193

Payable on demand (incl. Group facilities) 409 1,176 1,171

Total 4,839 7,928 7,705

Current 1,365 3,041 1,621

Non-current 3,474 4,887 6,084

Cash and cash equivalents (848) (232) (102)

Net debt 4,005 7,755 7,596

Underlying EBITDA 1,332 1,139 842

Leverage Ratio 3.01x 6.81x 9.03x


13.6% in FY:2021 and maintain that uptrend averaging at

14.9% over the course of 5 years.

averaged at 0.8x. This suggests that Airtel does not utilise

its assets efficiently in generating revenue. Within this

period, revenue grew at 0.9% and 5.7% in FY:2018 and

FY:2019 respectively while assets fell 1.1% in FY:2018 and

grew 7.1% in FY:2019. We forecast an improvement in

asset turnover to an average of 0.4x between 2020 and

2024, based on expected improvement in revenue over

the forecast period, peaking at 0.5x in 2024, and declining

assets from increased accumulated depreciation.

The financial leverage ratio (equity multiplier), computed

as total assets to net assets averaged at -3.8x between

2017 and 2019. This was due to a negative leverage in

FY:2017 and FY:2018 following a significant level of bor-

rowings that scaled up liabilities, translating to negative

net assets. Nevertheless, Airtel Africa rebounded, posting

a leverage of 3.8x in FY:2019 on the back of increased net

assets stemming from payment of debts. We forecast lev-

erage to average 2.9x between 2020 and 2024 reflecting a

moderation, excluding FY:2021 when it marginally de-

clines.

Valuation

In the valuation of the business of Airtel Africa, we adopt-

ed a blend of absolute and relative valuation. Under the

absolute valuation, we employed the Discounted Free

Cash Flow method, Dividend Discount Model and Residual

Income Method while we employed the Price to Earnings

(P/E) Ratio and EV/EBITDA methodologies under the rela-

tive valuation in arriving at a target price for Airtel Africa.

To arrive at a 12-month target price for Airtel Africa, we

applied a 50:50 weighting scheme to the absolute and

relative valuation respectively. The weighting of the re-

spective methodologies is as follows:

Absolute Valuation

Discounted Free Cash Flow Method 10.0%

Company Analysis

profit after tax (PAT) expanded to $372.0m and $450.0m

respectively from ($9.0m) and ($134.0m) in FY:2018. This

performance was driven by an increase in operating prof-

it (resulting from growth in revenue caused by an in-

crease in customer base especially from data and mobile

money) and lower finance costs. Likewise, paying off high

interest bank loans considerably cut finance cost which

remain profitable in the medium to long term is positive,

hinged on expectations for continuous growth in its mo-

bile services and mobile money, settling debt payment

and keeping depreciation and amortisation in check.

three year period (2017 2019). Despite the positive ROE

reported in FY:2017 and FY:2018, the Group posted a

negative bottom line and net assets. However, we fore-

cast stronger ROE moving forward, averaging 18.3% over

a five-year period (2020 2024) on the back of growing

profit and declining net assets following increase in liabil-

ities. Airtel s ROE pales in comparison with MTNN s ROE

averaging 92.6%. Net profit margin closed in the nega-

tive region between 2017 and 2018 on the back of nega-

tive net margin following high finance costs. However, in

2019, there was an uptick in revenue and profit leading

to a positive net margin of 13.4%. We forecast net profit

margin will decline in FY:2020 to 11.3% but increase to

Chart 58: PBT and PAT (2019 - 2024F)


Chart 59: Airtel’s DuPont Estimations


2017 2018 2019 2020f 2021f 2022f 2023f 2024f

ROE 63.1% 10.5% 17.0% 11.2% 13.9% 17.6% 21.2% 27.4%

Net Profit Margin -21.8% -4.7% 13.4% 11.3% 13.6% 15.3% 16.6% 17.7%

Asset Turnover (x) 0.34 0.34 0.34 0.35 0.37 0.40 0.44 0.49

Leverage (x) -8.62 -6.46 3.75 2.85 2.77 2.89 2.92 3.17

-652

-9

372

570 676

766 859

960

-769

-134

450 451 521

575 627

682

-900.0

-700.0

-500.0

-300.0

-100.0

100.0

300.0

500.0

700.0

900.0

1,100.0

2017 2018 2019 2020F 2021F 2022F 2023F 2024F

PBT ($'m) PAT ($'m)


Company Analysis

Dividend Discount Model 80.0%

Residual Income Method 10.0%

Relative Valuation

Price to Earnings Ratio (70.0%)

EV/EBITDA ratio (30.0%)

On this basis, We arrived at a target price of ₦419.53k against the current price of ₦298.90 (22/05/20), hence we recom-

Discounted Free Cash Flow (DFCF)

Under this approach, our forecast is underpinned by a $3.3bn CAPEX over the next five years. These cash flow forecasts

gives ₦1,633.05k.


Chart 60: Airtel’s Blended Target Price


Chart 61: Airtel’s Discounted Free Cash Flow

Discount Period 1 2 3 4 5 Terminal Value

Discount Rate 11.7% 11.7% 11.7% 11.7% 11.7% 11.7%

Discount Factor 0.90 0.80 0.72 0.64 0.58

Discount FCFs 1,138.82 1,130.96 1,127.06 1,103.68 1,097.45 14,911.04

Present Value of Terminal value 8,592.68

Total PV of Cash Flows ($'m) 14,191

Shares Outstanding (in M) 3758.2

Fair Value per Share 3.78

12-month Target Price 4.54

Price/Share (NGN) 1,633.05

Blended Target Price Price WeighingBlended Absolute Valuation 0.90 50%

Relative Valuation 1.43 50%

12-Month Target Price (Dollars) 1.17

12-Month Target Price (NGN) 419.53

Upside/(Downside) 40.4%

Rating BUY


Company Analysis

Dividend Discount Model (DDM)

For our assumptions, we adopted a risk-free rate of 10.5% in line with average yield on 10-year FGN bond and a beta of

0.18 (Bloomberg peer comparison) to arrive at our 20.1% cost of equity and long-term growth rate of 4.0%. We main-

the present value of expected dividend streams gives ₦197.36k.


To arrive at our residual income, we derived our residual rate of return by subtracting cost of equity (20.1%) from ROE

and then multiplied it by our book value per share. The forecast residual income was discounted to the present using the

₦662.65k.


Chart 62: Airtel’s Dividend Discount Model


Chart 63: Airtel’s Residual Income Method

Dividend Discount Model

FY19 FY20 FY21 FY22 FY23 FY24 Terminal Value


% y-o-y growth -275.5% -47.5% 16.3% 10.6% 9.2% 8.7%

Dividend per share - 0.09 0.10 0.11 0.12 0.13

Dividend Pay out Ratio 0.0% 80.0% 80.0% 80.0% 80.0% 80.0%


Discount Factor 1.00 0.83 0.69 0.58 0.48 0.40 0.40

0.34

Discounted Dividend - 0.07 0.07 0.06 0.06 0.05 0.14

PV of Dividends 0.46

12-month Targer Price (Dollars) 0.55

12-month Targer Price (NGN) 197.36


FY19 FY20 FY21 FY22 FY23 FY24 Terminal Value


% y-o-y growth -275.5% -47.5% 16.3% 10.6% 9.2% 8.7%

Opening Book Value per share 1.54 1.15 0.86 0.75 0.66 0.50

% y-o-y growth -25.5% -24.9% -12.5% -12.1% -25.2%

ROE 16.95% 12.4% 14.7% 18.6% 23.1% 33.5%

Residual Rate of Return -3.18% -7.7% -5.4% -1.5% 2.9% 13.4%

Residual income (0.05) -0.09 -0.05 -0.01 0.02 0.07 0.17


Discount Factor 1.00 0.83 0.69 0.58 0.48 0.40 0.40

Discounted RI (0.05) (0.07) (0.03) (0.01) 0.01 0.03 0.07

PV of Residual Income (0.01)


12-month Target Price (Dollars) 1.84

12-month Target Price (NGN) 662.65


Company Analysis

Price to Earnings Ratio Valuation

We averaged the P/E of a selected group of companies using the Global Industry Classification Standard (GICS) and multi-

the implied equity value by the number of shares outstanding equaling $1.39 (₦501.75k).

EV/EBITDA Ratio Valuation

Similar to P/E valuation, we averaged the EV/EBITDA ratio of s selected group of companies using the Global Industry

The implied equity value is determined by adding cash and subtracting debt from the implied enterprise value. Finally,

the fair value per share is derived by dividing the implied equity value by the number of shares outstanding equaling

$1.53 (₦551.01k).


Chart 64: Airtel’s P/E and EV/EBITDA Ratio Valuation

Relative Valuation

Global Comparison P/E Multiple (x) 12.79

Profit After Tax (2019F) 409.54

Implied Equity Value 5,237.95

Shares Outstanding 3,758.15


Global Comparison EV/EBITDA (x) 5.69

EBITDA (2019F) 1,414.65

Implied Enterprise Value 8,052.35

Cash 812.07

Debt -3,112.22

Implied Equity Value 5,752.20

Shares Outstanding 3,758.15


Relative Target Price (Dollars) 1.43

Relative Target Price (NGN) 516.53


Section Six

List of Charts, Tables and Figures



Chart 1: Telecommunications Contribution to Global GDP

Chart 2: Global Mobile Unique Subscribers

Chart 3: Global Mobile Internet User Unique Subscribers

Chart 4: Telecommunications Value Chain

Chart 5: Teledensity across Global Regions (2018 2019)

Chart 6: Mobile and Fixed Broadband Subscriptions per 100 inhabitants

Chart 8: Key Trends Shaping the Mobile Industry

Chart 9: Percentage Contribution of Telecommunications Industry to GDP and Growth Rate at Constant Prices (1999

2019)

Chart 10: Historical Trajectory in the Number of Subscribers and Teledensity (%)

Chart 11: Mobile Subscriptions vs. Fixed line Subscriptions

Chart 12: Market Share based on GSM Subscriptions (DEC. 2019)

Chart 13: Total Number of Voice and Data Subscribers (DEC 2019)

Chart 14: Cumulative Incoming and Outgoing Porting Activities of Network Operators (DEC 2013 DEC 2019)

Chart 15: Number of Active Subscribers of Technologies used by Licenced Service Providers (December 2019)

Chart 16: Market Share by Technology (%)

2019)

Chart 18: Major MTNN Milestone Achievements

Chart 19: Historical Subscriber Data (2014-2019)

Chart 20: Market Share by Operator (December 2019)

Chart 21: Spectrum Licences Held by MTNN

Chart 22: SWOT Analysis for MTN Nigeria

Chart 23: Ownership Structure of MTN Nigeria

Chart 24: Fine Payment and Impact on PBT

Chart 26: Revenue Progression in ₦ 2024)

Chart 27: ARPU in Nigeria (Q1:2014 Q4:2018)

Chart 28: Share of Revenue by Segment (2015 2019)

Chart 29: COS Progression in ₦ 2019)

Chart 30: OPEX Progression in ₦ 2019)

Chart 31: Composition of COS (2016 2019)

Chart 32: Composition of Operating Expenses (2016 2019)

Chart 33: CAPEX and CAPEX Intensity (2013 2019)

Chart 34: Comparison of CAPEX, EBITDA and AFCF (2013 2019)




2019)

2019)

Chart 38: PAT Progression in ₦ 2024)

Chart 44: SWOT Analysis for Airtel Africa

Chart 45: Subscribers by Region

Chart 47: Revenue by Country

Chart 48: EBITDA by Country

Chart 49: Revenue by Segment (2017 - 2019)

2024)

Chart 51: Revenue by Segment 2019

Chart 52: Revenue by Country (2017 2019)

2019)

Chart 54: Breakdown of OPEX (2017 2019)

2019)


Chart 57: Debt Structure

Chart 58: PBT and PAT (2017 - 2024F)


Section Seven

Afrinvest (West Africa) Limited


About Us

Afrinvest (West Africa) Limited (“Afrinvest” or the “Company”) is a leading independent investment banking firm with a

focus on West Africa and active in four principal areas: investment banking, securities trading, asset management, and

investment research. The Company was originally founded in 1995 as Securities Transaction and Trust Company Limited

(“SecTrust”) which grew to become a respected research, brokerage and asset management firm. Afrinvest (West Africa)

Limited is licensed by the Nigerian Securities and Exchange Commission (“SEC”) as an issuing house and underwriter. We

provide financial advisory services as well as innovative capital raising solutions to High Net-worth Individuals (“HNIs”),

corporations, and governments. Afrinvest is a leading provider of research content on the Nigerian market as well as a

leading adviser to blue chip companies across West Africa on M&A and international capital market transactions. The

company maintains three offices in Lagos, Abuja and Port-Harcourt.

Afrinvest Securities Limited (“ASL”) is licensed by the Nigerian SEC as a broker dealer and is authorized by the Nigerian

Stock Exchange (“NSE”) as a dealing member. ASL acts as a distribution channel for often exclusive investment products

originated by Afrinvest and AAML as well as unique value secondary market trading opportunities in equity, debt,

money market and currency instruments.

Afrinvest Asset Management Limited (“AAML”) is licensed by the Nigerian SEC as a portfolio manager. AAML delivers

world class asset management services to a range of mass affluent and high net worth individual clients. AAML offers

investors direct professionally managed access to the Nigerian capital markets through equity focused, debt focused and

hybrid unit trust investment schemes amongst which are the Nigeria International Debt Fund (NIDF), Afrinvest Equity

Fund (AEF), Balance Growth Portfolio (BGP), Ethical Investment Portfolio (EIP) and Guaranteed Income Portfolio (GIP).

Contacts

For further information, please contact:

Afrinvest West Africa Limited (AWA)

27,Gerrard Road

Ikoyi, Lagos

Nigeria

Tel: +234 1270 1680 | +234 1 270 1689

www.afrinvest.com

Investment Research

Abiodun Keripe [email protected] +234 1 270 1680 ext. 314

Adedayo Bakare [email protected] +234 1 270 1680 ext. 316

Aminat Ibidun [email protected] +234 1 270 1680 ext. 313

Akintoye Oyelakun [email protected] +234 1 270 1680 ext. 321

Babajide Atolagbe [email protected] +234 1 270 1680 ext. 312

Benedict Egwuchukwu [email protected] +234 1 270 1680 ext. 317

Oluwadara Olunuga [email protected] +234 1 270 1680 ext. 319

Vivian Alozie [email protected] +234 1 270 1680 ext. 318

Institutional Sale and Marketing

Ayodeji Ebo [email protected] +234 1 270 1680 ext. 315

Bolaji Fajenyo [email protected] +234 1 270 1680 ext. 261

Investment Banking

Oladipo Ajike [email protected] +234 1 270 1680 ext. 180

Jessica Essien [email protected] +234 1 270 1680 ext. 171

Asset Management

Ola Belgore [email protected] +234 1 270 1680 ext. 281

Florence Warikam [email protected] +234 1 270 1680 ext. 289


About Us

ANALYST'S CERTIFICATION AND DISCLAIMER

The research analysts responsible for this report hereby certify that: 1) all of the views expressed in this report reflect our

personal views about the subject industry, the subject company or companies and its or their securities referred to in this

report, 2) we also certify that no part of our compensation was, is or will be directly or indirectly related to the specific

recommendations, views or opinions expressed in this report, and 3)no part of our compensation is or will be tied to any

specific investment banking transaction between the companies covered in this report and Afrinvest (West Africa)

Limited.

Fair Value Estimate

Our approach to establishing fair value takes into account a weighted average of price estimates derived from a blend

well as other relative/comparable trading multiples valuation models. However, we attach the most weight to EV/EBITDA

fundamentals, as well as key price drivers from the firm, industry and macroeconomic perspectives.

Company-Specific Disclosures

The following disclosures relate to relationships between Afrinvest (West Africa) Limited or its analyst(s) with companies

covered in this report.

COMPANY SECURITY DISCLOSURES

MTN Nigeria Communications Plc MTNN -

Airtel Africa Plc AIRTELAFRI -


DISCLAIMER

Investment Ratings

BUY: The expected total return over the next 12 months is 25.0% or more. Investors are advised to take

positions at the prevailing market price as at the report date.

ACCUMULATE: The expected total return over the next 12 months ranges between 10.0% and 25.0% or the upside

potential is above industry average. However, cautious portfolio positioning is advised.

HOLD: Over the next 12 months, investors are advised to remain neutral as the expected total returns may not

exceed 10.0% based on the prevailing market price as at the report date.

REDUCE: The expected total return of the stock ranges from nil to negative. Aggressive exit or entry may not be

appropriate as the stock might fluctuate into a 10.0% decline over a 12-month horizon. Thus, the slim

upside potential does not adequately compensate for the inherent risk.

SELL: The stock trades at a premium to its intrinsic value and is thus expected to lose up to 10.0% or more of

its market value. Immediate exit is therefore advised at the prevailing market price as at the report

date.

However, prices of securities could fluctuate if earnings miss estimate or due to general market, industry or

macroeconomic risk factors.

For more details on company specific valuation methodologies, upside/downside risks to current valuation, contact the

primary analyst or email [email protected]

BUY ACCUMULATE HOLD REDUCE SELL Total

Universe 2 0 0 0 0 2

% distribution 100.0% 0.0% 0.0% 0.0% 0.0% 100.0%

Ratings Summary


DISCLAIMER

information from various sources that we believe are reliable; however, no, representation is made that it is accurate or

complete. While reasonable care has been taken in preparing this document, no responsibility or liability is accepted for

errors or fact or for any opinion expressed herein. This document is for information purposes only. It does not constitute

any offer or solicitation to any person to enter into any trading transaction. Any investment discussed may not be

suitable for all investors. This report is provided solely for the information of clients of Afrinvest who are expected to

make their own investment decisions. Afrinvest conducts designated investment business with market counter parties

and intermediate customers and this document is directed only at such persons. Other persons should not rely on this

document. Afrinvest accepts no liability whatsoever for any direct or consequential loss arising from any use of this

report or its contents. This report is for private circulation only. This report may not be reproduced distributed or

published by any recipient for any purpose without prior express consent of Afrinvest. Investments can fluctuate in price

and value and the investor might get back less than was originally invested. Past performance is not necessarily a guide

to future performance. It may be difficult for the investor to realize an investment. Afrinvest and/or a connected

company may have a position in any of the instruments mentioned in this document. Afrinvest and/or a connected

company may or may not have in the future a relationship with any of the entities mentioned in this document for

which it has received or may receive in the future fees or other compensation. Afrinvest is a member of The Nigerian

Stock Exchange and is regulated by the Securities and Exchange Commission to conduct investment business in Nigeria.

For further information, please contact:

Afrinvest Securities Limited (ASL)

27 Gerrard Road

Ikoyi, Lagos

Nigeria

Tel: +234 1270 1680

Fax: +234 1 270 1689

Documents

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