South Africa: The MTN ‘war machine’ is back

By Quentin Velluet

Posted on Tuesday, 15 March 2022 09:05
MTN CEO Ralph Mutina at the results presentation. © Simphiwe Mbokazi.

The pan-African group MTN achieved outstanding results after its first year under Ralph Mupita’s leadership.

Ralph Mupita set himself two objectives for 2025 when he took office in 2021: to search for hidden value and to transform a traditional telecom operator into a digital platform. A year and a half after assuming his post, during his first presentation of the operator’s annual results, the chief executive of MTN Group sought to prove that the trajectory of the 272 million customer company, was on track.

During the 2021 financial year, the group made R181.6bn (more than $11.9bn) in revenue and had a net profit of more than R80bn – an increase of almost 24% despite profits after tax falling to R16bn (from R20bn in 2020). Amidst a political and economic environment that is more uncertain than ever, the new Zimbabwean boss and his team have proven their ability to control costs.

Several growth levers

Under its previous CEO Rob Shuter, MTN Group had already committed to improving its liquidity and it is now showing strong results in this area too. At the end of last year, the group’s cash and short-term investments reached a record R83.2bn, 21% higher than at the end of 2020, and twice the volume in December 2019. Cumulative net profit in 2020 and 2021 was R30.8bn, R8.54bn higher than in the previous three years combined and twice that achieved in 2017.

The Johannesburg behemoth can also pride itself on maintaining solid growth levers in services (data, mobile money and other entertainment), whose growth exceeds 30% and compensates more and more each year for the loss of speed in voice revenues – which are nevertheless still growing by 5%.

In Cameroon and Côte d’Ivoire, for example, data (4G consumption) and fintech (MTN MoMo – financial services) represented the operator’s second and third largest sources of revenue in 2021. The West Africa region (Ghana, Côte d’Ivoire, Cameroon, Benin, Republic of Congo, Guinea, Guinea-Bissau and Liberia) recorded revenues of R48bn (26% of total revenues).

$21.9bn in capitalisation

As a sign of renewed confidence after the turmoil of the pandemic, MTN decided – as promised last year – to resume paying a suspended dividend in 2020 in order to facilitate the deleveraging of the group, whose ratio to gross operating profit (Ebitda) has dropped from 1 to 0.4. The dividend for the past year has been set at 300 rand cents per share, 40 cents more than initially announced.

This optimistic message to the financial markets – which Mupita knows well – has had the effect of boosting the stock listed on the Johannesburg Stock Exchange (+2.95% at the time of writing this article). MTN’s shares have jumped 151% in one year and, trading at R192 as of 10 March 2022, are now close to the records set in 2015 (over R200). This momentum has enabled the group, which operates in 19 markets in Africa and the Middle East, to post an estimated market capitalisation of €20bn ($21.9bn).

Organic growth

Mupita’s long-term objective is to transform the pan-African operator into a platform that offers a multitude of services. Interestingly enough, external growth does not seem to have been on its agenda ever since it failed to obtain a licence in Ethiopia in 2021. The focus is now on organic growth, according to the video conference hosted by the CEO and CFO Tsholofelo Molefe, who presented the results to analysts from the Johannesburg headquarters on 9 March 2022.

In line with this, particular attention was given to fibre within MTN’s $2bn investment portfolio in 2021 (18% of revenue). According to the operator, 15,000km of fibre was laid in 2021, “bringing the total inventory to about 100,000km of fibre”.

Separating activities

Although MTN has finally obtained a mobile banking licence in Nigeria, allowing it to launch MTN MoMo, the company has still not finished dividing up this entity that is dedicated to fintechs. Like its competitors M-Pesa and Airtel Money, this operation is supposed to attract strategic minority partners and enable it to raise several hundred million dollars.

MTN MoMo handles 10 billion transactions per year, with R239.4bn exchanged via the platform. The service currently has nearly 57 million users and 974,000 agents. By 2020, Mupita had hoped to value the application at $5 to $6bn through outside investors. However, now that MTN MoMo’s rollout has been approved by the Central Bank of Nigeria (the South African group had been initially excluded from this niche, a decision that was overturned in November 2021) analysts anticipate that this subsidiary’s future valuation could exceed this target.

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