MTN Shares Have Fully Recovered from Nigerian Curve Balls But Work Remains

As the rally in MTN shares continues to gain steam, analysts caution that the company is not out of the woods yet because of its continued battles in Nigeria, geopolitical tensions in Iran and network expansion.

The operator’s share price has fully recovered from the steep losses incurred in the second half of 2018, when Nigerian authorities shocked the mobile operator with hefty demands.

Petri Redelinghuys, founder of Herenya Capital Advisors said there is not yet enough evidence to say confidently that MTN’s down trend is broken.

“In the short term, it does appear that things are looking up for the share price and I would not be surprised if we see a sustained longer-term recovery. In a nutshell, I think the recovery has started,” he said.

Shares in the group rose to a high of R107.70 on Thursday, compared to a close of R107.34 on August 29 2018, the day before they crashed on news that the Central Bank of Nigeria (CBN) wanted MTN to return $8.1bn (R120bn) in dividends.

That announcement, and a separate $2bn demand for back taxes made by Nigeria’s attorney-general, sent MTN’s shares below R70 by mid-September 2018.

While the company reached a settlement with Nigeria’s central bank in late December — the $8.1bn claim was reduced to $53m — the tax case is yet to be resolved, though MTN says its tax affairs are in order.

MTN’s shares were up 1.32%, closing at R107.50 on Thursday.

Sentiment towards the stock has improved since MTN published its results in March and eased investor concerns with a set of bullish targets and numbers that showed debt was under control.

Peter Takaendesa, portfolio manager at Mergence Investment Managers, said MTN’s improved growth is likely to be sustained by accelerated investment into its mobile networks across key countries.

It will have to lean on network performance, greater Nigerian currency stability and stronger cost control improving the group’s profit margins.

MTN has announced plans to sell R15bn in assets over the next three years.

It also raised its medium-term target for service revenue growth to “double digits”, and said adjusted return on equity should improve from 11.5% in 2018 to above 20% over time.

“The next big challenge here is the potential loss of revenue from legislated lower data prices in SA. We all know it’s coming, it has to,” said Redelinghuys.

How much of an effect that will have on the group’s earnings remains to be seen as it is not known by how much it will be forced to cut prices, he said.

“Another challenge is integrating the new management team and board into the business and seeing how that impacts the companies operations in its various markets.”

Lester Davids, trading desk analyst at Unum Capital said “MTN operates a high-risk, high-reward business”.

“Iran, for example, is a territory that represents great opportunity but also represents a high level of risk when one looks at it from a geopolitical standpoint.”

Growing tensions between the US and Iran could make it difficult for MTN to do business in the region, which is a big risk, said Davids.

As local operators prepare for a 5G future, Davids said MTN’s revenues may be strained due to capital expenditure on network infrastructure for the new technology.

It has been speculated that MTN’s listing of its Nigeria unit in May would help to ease relations between the company and that country’s government.

Takaendesa said: “It’s too early to tell if the listing in Nigeria will resolve the current disputes in that country, but it’s reasonable to believe that the more MTN Nigeria shares [are] owned by the public over time the less will be the magnitude of any sanctions on the company.”