In spite of the rise in investment to over $70 billion in 2021from $38 billion in 2015, National Identification Number (NIN) and SIM verification exercise initiated by the Federal Government (FG) weighed on growth margins, declining by 4.4 per cent, analysts at Afrinvest have said.
The fall in subscribers’ base is in spite of the fact that the population growth was favourable, inching higher by c.2.6 per cent to 211.4 million, according to the World Bank.
While the impact of mobile money has been significant in other African countries, helping to bridge the financial inclusion gap, creating healthy competition, alternate revenue stream, and job opportunities, Nigeria is yet to get involved (Globacom and 9mobile). However, in November 2021, MTN Nigeria and Airtel Africa received approval in principle to operate as Payment Service Banks, with the privilege to provide banking services to the public.
“Upon final approval, we posit this would aid the CBN’s goal of onboarding 95.0 per cent of the bankable adults into financial services by 2024 while increasing the profit margins of the Mobile Network Operators (MNOs). Noteworthy, by April 2022, MTNN has received full approval.
Additionally, the sector faced other headwinds which include weak consumer purchasing power, multiple taxations, vandalism, foreign exchange devaluation, poor power supply, and high cost of energy.
On this backdrop, the Gross Domestic Product (GDP) performance of the telecommunications sector paled as it grew 7.3 per cent year-on-year ( y/y) – 863 basis points (bps), shy of 2020 level.
“On a quarterly basis, we observed that telecoms GDP grew 7.7 per cent (first quarter), 5.9 per cent (second quarter), 10.9 per cent (third quarter) and 5.3 per cent (Q4). Notably, the GDP growth rate in the fourth quaker of 2021 was the slowest in 14 quarters since first quarter of 2018.
“Nevertheless, the telecoms sector remained resilient, as its growth pace (2021: 7.3 per cent y/y) continued to outperform the broader economy (2021: 3.4 per cent (y/y). Hence, our theme, “A Bright Spot Amid Miry Waters”
Afrinvest’s analysis of the telecommunications companies across selected BRICS and African markets revealed the undervaluation of Nigerian companies. Relative to the BRICS market (24.3x and 19.2x), the Nigerian telecoms sector trades at a P/E ratio and EV/EBITDA multiple of 14.0x (previously 14.5x) and 5.7x (previously 5.8x) respectively. Although Nigeria’s P/E ratio is above the African market (12.5x), it is relatively attractive in terms of EV/EBITDA (6.4x). We believe there is a potential for strong returns over the next 12 months given the new business expansion drives of industry players and the modest economic growth outlook. Across the companies under our coverage, we issued a “BUY” rating on MTNN and a “SELL” rating on Airtel Africa Plc.
