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MTN Nigeria: Expanding Investors’ Wealth Via Public Offer

13 Dec 2021

Nigeria’s largest telecommunication network and the most capitalised company on the Nigerian Exchange Limited (NGX) – MTN Nigeria Communications Plc – recently announced its Initial Public Offering (IPO) to Nigerians, with over 500 million shares to be sold to retail investors for N169 each.

In 2019, MTN Nigeria reached an agreement with the federal government that they were going to list the company on the stock exchange and let Nigerians have more equity.

MTN Nigeria is the largest mobile network operator in Nigeria. It has consistently grown its customer base from 59.9million subscribers at the end of 2014 to 76.5million mobile subscribers at the end of 2020, representing 37.50 per cent of the total mobile subscribers in the country.

MTN Nigeria has a free float of 21.17 per cent, above the 20 per cent free-float requirement of companies listed on the Premium Board of the NGX Limited where the company is currently listed. The sale of 575,000,000 shares by the Group would increase the free-float of the company to 24 per cent.

MTN Group, which controls 78.83 per cent of the issued and fully-paid shares of MTN Nigeria through its two subsidiaries; MTN International (Mauritius) Limited and Mobile Telephone Network N.I.C.B.V plans to divest out of 575,000,000 of its holdings, representing 3.58 per cent of its holdings in the Nigerian sub-subsidiary.

This is the first series of a larger equity shelf program where up to 2,814,830,718 shares of MTN Nigeria would be offered for sale to the investing public. This equity shelf program would see MTN Group over the next three years possibly reduce its holding in the Nigerian subsidiary to 65per cent from the current 78.83 per cent.

MTN Group Limited has in recent times been scaling back its holdings in its subsidiaries in some of its strongholds, including in Ghana, Rwanda, and Zambia among others.

The Group Limited cited its intention to introduce a wider base of retails shareholders into the ownership of MTN Nigeria while also achieving an increase in the company’s free float on NGX as the key reason for the divestment. This claim can be supported by the fact that in recent times, MTN Nigeria has been increasing the localization of its management, appointing Nigerians into key managerial roles. The Group also cited how the offer aims to improve liquidity in the shares of MTN Nigeria.

The company has actually lived up to its reputation with consistently profitable books year after year.

Maintaining strong fundamentals
From the topline performance, MTN Nigeria reported 23.6 per cent increase in revenue to N1.21trillion in nine months of 2021 from N975.76billion reported in nine months of 2020 given the amount of challenges businesses face.

The breakdown of revenue revealed that it generated N722billion from Voice, an increase of 23.7 per cent from N653.02billion reported in nine months of 2020, while revenue from Data grew by 51.5 per cent to N366billion from N241.6billion in nine months of 2020.
Fintech also grew by 55.2 per cent to N50.24billion from N32.4billion recorded in nine months of 2021 while revenue from Digital services closed nine months of 2021 at N12.08billion from N7.74billion recorded in nine months of 2020.

In addition, “other service revenue” grew by 38 per cent to N53.87billion in nine months of 2021 from N39.06billion recorded in nine months of 2020.

Even in 2020, where the pandemic took a major hit on business financials, MTN held its own and still went past the trillion naira mark with a declared revenue of N1.3 trillion.

The growth in revenue means the telecommunication about N144 billion away from hitting last year’s figure. It is instructive to note that MTN has reported a quarterly average revenue of N340 billion this year, and if the fourth quarter hits the same figure, then MTN would already have broken its 2020 record revenue of N1.3trillion.

All of these increases in revenues are happening in spite of the negative growth in subscriber figures due to challenges from the SIM card registration, the National Identification Number (NIN) linkage and other policy challenges.

From the company’s recent profit & loss figures, it reported 19.5 per cent increase in cost of sales to N200.47billion in nine months of 2021 from N179.2billion in prior nine months while operating expenses grew by 24.3 per cent to N371.28billion in nine months of 2021 from N298.75 billion reported in nine months of 2020.

Despite growth in expenses, the telecommunication company gained 32 per cent increase in profit before tax to N321.35billion in nine months of 2021 from N211.59billion reported in nine months of 2020.
With 50 per cent tax expenses in nine months of 2021, the company’s profit after tax hits N220.3billion in nine months of 2021 from N144.24billion reported in nine months of 2020.

listing by introduction
The company started with the listing by introduction in 2019 and this brought in more institutional investors into the company. The current move is to bring in more retail investors, and gradually reduce the stakes of the MTN group in MTN Nigeria.

“This is the first step in a series of offers over the near to medium-term for MTN Group to sell-down a total of up to 14per cent shareholding in MTN Nigeria.
“This should result in greater ownership by Nigerian institutional and retail shareholders, and increased liquidity of the share on the Nigerian Exchange Limited.” said Group President and Chief Executive Officer Ralph Mupita.

MTN is about the most capitalised company currently on the Nigerian Exchange Limited (NGX), and it is not just about big names and titles.
In fact, the CEO, Karl Toriola had said during the investor call that they expect their subscriber base to turn positive for the first time in about six quarters after surmounting all of those challenges. This bodes well for greater revenue growth for MTN.

Nigeria is still far from attaining the financial inclusion goal as many persons still do not have access to banking services, and the mobile money will reach more people than the conventional banks have been able to reach. Given its large subscriber base, MTN really only needs to keep putting out products and services that the people need.

With all these numbers and facts out there, it is really not a question of whether or not to buy the stock. Courtesy of the listing by introduction done in 2019, MTN shares are already available in the stock exchange and can be bought at the market price, using any of the available stock brokerage platforms.

Now, the fix is this. If the MTN shares are already available in the market, investors want to know why they should buy the ones being offered on the IPO now. What is in the offer for Nigerians?

growth prospect
As of September 2021, MTN Nigeria had 33.2million active data users generating a total revenue of N488.221billion (annualized), up by over four folds over the last 7 years as data revenue maintained an accelerated growth trajectory. This brought data revenue share of total revenue to 30.36 per cent in 2021 from a meagre 11.27 per cent in 2014.
With 101.72million data users in Nigeria in 2021, MTN Nigeria remains the market leader with a 32.64 per cent share of the data market.

With MTN Nigeria continuing its push for the expansion of its 4G network coverage, and the expression of its readiness to launch the 5G network in the country, we expect data revenue to continue its accelerated growth trajectory, further increasing its contribution to the total revenue. Except for any extenuating black swan event, we expect MTN Nigeria to continue to maintain its current market leadership position in data services.

Bonus Shares
Following the successful completion of its book building process tagged ‘The Institutional Offer’ the company to only qualifying institutional investors, the company launches its public offer to retail investors ‘The Retail Offer’ as MTN Group Limited through its wholly-owned subsidiary, MTN International (Mauritius) Limited sells 575,000,000 units of shares.

The minimum application for shares to subscribe to is 20 ordinary shares, and multiples of 20 ordinary shares thereafter. In a bid to encourage participation in the offer while ensuring price stability post-allotment, MTN International (Mauritius) Limited is offering an incentive in the form of 1 bonus ordinary share for every 20 shares purchased, with the bonus capped at a maximum of 250 bonus shares per investor. An investor would however have to continuously hold the shares allotted for a minimum period of 12 months (post-allotment) to qualify for the bonus shares.

This offer is an offer for sale, hence the proceeds of the offer would be remitted to the selling shareholder (MTN International (Mauritius) Limited) net of offer cost which has been placed at N1,812,572,097.00kobo.

MTN Nigeria would not receive any portion of the net proceeds from the offer, and neither would the offer increase the issued and fully paid shares of MTN Nigeria. Hence current shareholding would remain undiluted.

The Group plans to allot a minimum of 10 per cent of the offer shares to qualified investors for the book-building, with up to 90 per cent of offer shares offered to retail investors. In the event of an oversubscription of the offer, the Group has a greenshoe option in place to offer additional shares not exceeding 15 per cent of the offered shares. This represents a total offered shares of up to 661,250,000 in the event of an oversubscription of 15 per cent and above.

Over the past one week, MTN market shares have closed lower than the offer price a couple of times. However, this is a normal market trend as there is a high supply of the stocks currently. Moreover, Nigerians who buy from the IPO will be getting 21 share units at the cost of 20 shares, and this in itself, takes care of any perceived price reduction that one might see in the market.

maximum possible participation
As explained by the CEO, Mr Karl Toriola, MTN aims to facilitate the maximum possible participation by Nigerian investors by using the power of technology and giving out the retail offer through a digital platform, the first in Nigeria.

“The offer includes an incentive in the form of one free share for every 20 shares purchased, subject to a maximum of 250 free shares per investor. The incentive is open to retail investors who buy and hold the shares allotted to them for at least 12 months, post the allotment date” he said.

While there are risks to investments, MTN Nigeria has had its most challenges in the form of regulations and policies from the government and the concerned bodies. By fulfilling its part of the agreement and bringing more Nigerian ownership into the business, one can expect the Nigerian government will begin to view MTN as a Nigerian rather than a foreign company.

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