We revise our HOLD recommendation for MTNGH to a BUY while revising our target price to GH¢1.10 from the current price of GH¢0.85 per share, representing an upside of 29.41%. We’re bullish on the economic recovery and the long term growth of MTNGH as it focuses more on data and mobile money.

Results Summary

Service revenue was up by 16.4% to GH¢5,992 million, led by an 8.1% YoY growth in voice revenue, 21.3% YoY growth in data revenue and a 32.2% YoY growth in mobile money revenue. Contribution to topline continued its shift to data (29.6%) and mobile money (21.2%). Opex cuts and digital distribution efficiencies led to an EIBTDA margin of 52.7%, resulting in a 38.4% YoY growth in profit after tax.

MTNGH continued to invest heavily in its business. Capex increased by 33.9% YoY, resulting in 11.89% growth in fixed assets. Higher P2P transactions led to a 92.61% YoY jump in mobile money float from GH¢3,405 million to GH¢6,559 million. The telco also increased its reliance on debt, increasing its long term borrowings by 147.13%.

Our recommendation is based on the following key investment highlights:

• Focus on long term growth. MTNGH’s continued capex (33.9% YoY growth) especially in 4G, position it for long term growth. The telco invested GH¢1,489 million in network capacity and infrastructure expansion which helped support a 105% growth in data traffic and reach 1,875 total 4G sites nationwide (71.7% 4G population coverage). Core capex intensity was 14.2% from 17.9% in FY2019.

• Impressive earnings growth and attractive dividend yield. PAT has grown by a CAGR of 28.93% since 2013. This impressive performance coupled with a high dividend payout ratio has led to high dividend yields (12.5% in FY2020). MTNGH paid a dividend of GH¢0.08 (GH¢0.03 interim dividend and GH¢0.05 final dividend), a payout of 70.5% of PAT and a 33.3% YoY increase.

• Attractive market. Digital acceleration as Ghanaians come online (Smartphone growth of 32.5% YoY to 10.5 million smartphones).

Valuation

MTNGH trades at 2.81x ‘21e P/B and 6.41x Fwd P/E. MTNGH’s dividend yield stands at 12.5% (70% PAT payout). Our GH¢1.10 twelve month target is derived via averages of the dividend model, comps, historical book value, DCF and the 52 week high and low.

Catalyst/Risks

Potential catalysts include widespread Covid-19 vaccination to lower the risk of another wave.

Downside risks to MTN’s long term growth include the spinoff of the telco’s mobile money arm. While such an event will likely bring a one-time windfall to investors, it will prevent investors from benefitting from the impressive growth of the business. Also, Government’s entry into the telecom space through the acquisition of AirtelTigo increases the risk of competition and regulatory risks.

Disclosure: SIC Brokerage does and seeks to do business with companies covered in SIC Brokerage Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of SIC Brokerage Research. Investors should consider SIC Brokerage Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

Disclaimer: The data contained in this document is based on material we believe to be reliable; however, we do not represent that the data is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in the document constitute our judgment as of the date of the material and is subject to change without notice. The document does not constitute investment advice and SIC Brokerage is not acting in a fiduciary capacity with respect to you or any other party. Before entering into any transaction or making any investment decision the recipient is strongly advised to seek their own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Further you should take steps to ensure that you fully understand appropriateness of the action in the light of your own objectives and circumstances. You should also consider seeking advice from your own advisers in making this or any other assessment. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed.