Africa: Afrinvest Bullish On MTN, Airtel Africa Shares

10 July 2020

Analysts at Afrinvest (West Africa) Limited have made case for investing in the shares of MTN Nigeria Plc and Airtel Africa Plc, saying their current prices are undervalued. In report obtained by THISDAY, Afrinvest said the telecommunications sector in Nigeria remains the fastest growing, the most resilient and the largest contributor to the economy's growth.

They noted that despite this, the sector is not at its full capacity yet, given weak broadband penetration at 37.8 per cent and the huge prospects for mobile money under the right regulatory framework. They noted that these opportunities drive their optimistic outlook for the sector despite weak macroeconomic conditions.

According to the analysts, the major pressure point for the industry has been regulation, with NCC's heavy regulatory fines and policies to ensure fair competition restraining the growth of some major players.

" Similarly, regulation has restricted the expansion into other business lines with strong prospects such as financial services, unlike in markets like Kenya and South Africa. We believe the speed and flexibility of regulation would shape the trajectory of growth and investment in the sector," they said.

They noted MTNN and Airtel Africa Plc have market share of subscribers at 37.3 per cent and 27.2 per cent respectively. The two companies have also continued to invest in telecommunications infrastructure to boost capacity and deliver superior services to customers, with annual capital expenditure of about N617.4 billion and N580.7 billion respectively over the past three years.

"With regulators loosening previously rigid rules and providing to telcos an even better opportunity to deliver financial services, we see another pathway for strong growth reminiscent of historical levels in the medium-term. The immediate worry is the unprecedented economic crunch brought by the COVID-19 pandemic worldwide, which could affect 2020 earnings. However, the industry is expected to remain resilient as the digital economy has boomed during the lockdown implemented to fight the pandemic," Afrinvest said.

It said that in its analysis shows that that MTNN (10.6x) and Airtel Africa (4.0x) are undervalued with an average P/E multiple of 7.3x compared with BRICS markets such as Brazil (11.6x), Russia (13.3x), India (13.4x), China (48.5x) and South Africa (12.5x).

"Put together with our positive outlook for the sector over the medium-term, we believe the opportunity is attractive. Based on our valuation of MTNN and Airtel Africa Plc, we arrived at a target price (TP) of N147.67 and N419.53 per share respectively, compared to N115.00 and N328.70 in that order as at yesterday.

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