Our opinion on the current state of MTN

MTN, a prominent mobile operator in emerging markets, serves a vast customer base of 290 million people, including 29 million in South Africa, across 19 countries in Africa and the Middle East. The company's substantial subscriber bases are primarily located in Iran, Nigeria, and South Africa. Like many in the mobile service industry, MTN faces intense competition and a decline in voice revenue, challenges partially offset by a significant rise in data usage. However, the company's operations are deemed particularly risky due to the political instability in Iran and Nigeria.

In a strategic move to diversify its revenue streams, MTN is collaborating with Sanlam to introduce insurance products to its clientele, aiming to establish fintech as a core component of its business model. This initiative reflects MTN's ambition to transform into a digital operator with a focus on fintech, digital services, enterprise, and wholesale business areas. The rollout of mobile money services in Nigeria and South Africa, extending to 14 of the 21 countries where it operates, underscores this ambition. With 41.8 million mobile money customers, MTN is targeting an increase to 60 million users. Additionally, MTN's listing on the Nigerian stock exchange marks a significant milestone in its expansion efforts.

However, MTN's operations have not been without challenges. On 13th January 2023, the company was hit with a $773 million (approximately R13.3 billion) tax assessment by the Ghanaian tax authorities, an action perceived as a financial shakedown similar to a previous incident in Nigeria. Despite these hurdles, MTN reported a 16.5% increase in service revenue and a 7.1% rise in headline earnings per share (HEPS) for the six months ending 30th June 2023. The subscriber count also saw a modest increase to 291.7 million.

The partnership with Mastercard, which involves a R100 billion stake in MTN's fintech business, represents a significant endorsement of MTN's fintech initiatives and its potential for growth. Nevertheless, the company faced challenges in maintaining its performance amidst high inflation rates across its markets, as indicated in the update for the three months ending 30th September 2023, with service revenue up by 9% and a slight increase in total subscribers.

Looking ahead, MTN's financial outlook appears pressured, with an estimated 60% to 80% drop in HEPS for the year ending 31st December 2023, attributed to non-operational factors such as hyperinflation adjustments and foreign exchange losses, particularly from naira depreciation. This situation highlights the impact of economic volatility in Nigeria on MTN's overall performance. With a current P:E ratio of 7.06 and a declining share price since March 2022, the recommendation is to monitor the share's trend closely and consider investing only upon a clear upward trendline break, indicating a potential reversal in its fortunes.