Anaslysts At United Capital says MTN Nigeria Stocks Underprice

Last week, MTN Nigeria PLC (MTNN) published its financial year report for 2018, indicating that revenue grew by 17.1 perceent year-on-year to 1.0 trillion naira while Profit after tax surged 79.7 percent year-on-year to 145.7 billion naira.

This spurred buying interest on the stock in the last two trading days. Also, the Telco paid 50.0 billion naira and 111.6 billion naira as dividends in 2017 and 2018 respectively, translating to a Dividend per Share (DPS) of 2.5 naira and 5.5 naira at a payout ratio of c.70 percent over the period.
In Q1-2019, MTNN reported revenue growth of 13.2 percent year-on-year to 282.1 billion naira.
If annualized, this translates to 1.13 trillion naira by end of 2019 financial year. As such, EPS and BVPS numbers both seem likely to settle at c.9.5 naira/share.
At a dividend payout of 80 percent (compared to 70 percent average in 2017 and 2018), we estimate DPS at c. 7.6 naira which implies a dividend yield of 5.7 percent.
Again, ROE was 87.7 percent in 2018, which is consistent with expected ROE of +90 percent for 2019.
In terms of valuation, we look at the Enterprise Value to EBITDA (EV/EBITDA) multiple for MTNN, this came to 6.3x, below 6.9x average for peers across the Middle East and African Markets. The implied fair price using EV/EBITDA model came to 145 naira.
However, by Price to Earnings multiples (P/E), MTNN has a PE of 13.9x compared to 20.4x for peers, implying a fair price of 194.5 naira/share.
Overall, our blended valuation model sees MTNN at 171.7 naira/share, indicating that MTNN is underpriced at current price with a 25.7 percent upside potential.
The shares of MTN Nigeria closed at 136.95 naira on Thursday, having gained 0.26 percent at the close of business and 52.2 percent year-to-date (three weeks of transactions on the local bourse.)