Explainer: MTN @N169 per Share Public Offer — To Buy or Not
Early yesterday morning, a former boss chatted me up on Whatsapp and asked my opinion on the recent news of MTN shares going for sale, especially on if it’s a good buy. I gave her a quick answer and made a mental note to write on it.
On December 1, investors in the nation’s capital market, now known as Nigerian Exchange Limited (NGX), woke up to the news that Nigeria’s largest telecommunications provider started a public offer of its shares which allows retail investors to purchase up to 575 million shares at N169 per share — lower than its share price on the secondary market at the time.
Why is MTN Doing This?
For a very long time, MTN Nigeria, which is 79% owned by the MTN Group from South Africa, fought tooth and nail not to list on the Nigerian Stock Exchange, as it was called then. Then the multi-billion dollar dividend repatriation row started in 2018. The federal government accused MTN of moving over $8 billion abroad illegally. It asked MTN to return the funds to the country. It also fined 4 banks — Standard Chartered Bank; Stanbic IBTC; Citibank; and Diamond Bank — around N6 billion for helping MTN out with these transactions.
Before this, MTN in 2015 was fined N1.04 trillion by the Nigerian Communications Commission (NCC) for failing to disconnect around 5.1 million subscribers from its network for not having been registered as of September 2015, as prescribed by the regulatory agency.
Compounding issues, Abubakar Malami, the attorney-general of the federation, asked MTN Nigeria to pay the sum of $2 billion in back taxes as tax arrears which covered import duties, value-added tax (VAT), and withholding taxes on foreign imports/payments. The federal government had said the multinational telecoms firm owed taxes from 2007 to 2017. This was eventually settled in January 2020 but not before these issues led to shares in MTN falling by around 20% on the Johannesburg Stock Exchange in South Africa in 2019.
So, as a way of appeasing the Buhari government particularly on the NCC issue, some analysts said that MTN accepted a condition of settlement by listing on the Nigerian Stock Exchange. On May 16, 2019, MTN was listed on the NSE at N90 per share to fanfare and was given the ticker MTNN. There was such a scramble for MTNN’s shares that many investors were unable to get for themselves. The MTN group still owns 79% of the MTN Nigeria while Nigerian investors own 22%. But MTN Group committed to reducing its shareholding from 79% to 65% over time.
The offer you have been hearing about is the MTN Group’s attempt to slowly reduce its ownership percentage over time.
Explain MTNN’s Offer in Simple Terms.
MTN Group will sell up to 575 million shares in MTN Nigeria to retail investors in a public offering priced at N169.00 per share (the Offer).
Remember that when MTN was listed in 2019 that it was at N90? So it means that those who bought at that time have gained 87%.
MTN says that for this offering, the minimum you can purchase is 20 shares, and then multiples of 20 thereafter. In other words, 20 shares, or 40 shares, or 80 shares, etc. Multiples of 20. They added a sweetener by saying that there is a bonus of one free share for every twenty shares purchased, up to a total of 250 free shares per investor. In other words, if you purchase 100 shares, you will get 5 shares for free. But for you to get these 5 shares, you have to hold the 100 shares for 12 months after purchase.
Should I Buy?
I don’t know.
I will only tell you the potentials and the drawbacks. You can then make up your mind about what it’s going to be.
MTNN is the leading telecommunications company in Nigeria with 272 million subscribers, 119million active data users, and 51million active mobile money customers. It is the largest listed company by revenue on the stock exchange. It is the first listed company on the Nigerian Exchange to record a revenue of N1trn. It is also the second most valuable company in Nigeria, only behind Dangote Cement.
What I find interesting about MTNN’s Q3 result is that it grew its service revenue by 23% and its data revenue by a whopping 51%. Its EBITDA Margin increased by 52%. Its Profit After Tax (PAT) grew by 52% and most importantly to the investor, it returned an interim Dividend Per Share of N4.55. Declaring this kind of dividend means that if you have 100 shares of MTN, you’d be given an extra (100 * 4.55 =.) N455.
Dividends are important because it means that MTNN is interested in sharing its profits with its investors. As of September 2021, MTN and Dangote Cement were the only two companies in Nigeria that paid out more than N100 million to their investors. While Dangote Cement paid N272 billion in dividends, MTN paid N212.7 billion. But for MTN, that was a 23% improvement from 2020. Dangote’s dividend payment stayed the same. Karl Toriola, the CEO, boasted during the roadshow that MTNN has paid over N2.3trillion paid out since inception as dividend.
And if current trends can be trusted, then MTNN is on course to beat last year’s record revenue of N1.35 trillion. As of September, it has already made N1.206 trillion according to data from its financial statement.
What’s gotten a lot of people excited about MTN is the prospects of mobile money (MoMo). Just last month, MTNN received a provisional license to operate Payment Service Banks (PSBs) in Nigeria. This license essentially makes a MTN a bank (without the lending and insurance features). With this license, it throws itself in a position to reach over 40 million unbanked Nigerians who are in mostly hard-to-reach rural communities. MTN is truly ‘everywhere you go’ in Nigeria and this license will enable them build on the assets they have worked hard to build across the length and breadth of the country since they got into Nigeria in August 2001. Bloomberg reports that a third of MTN’s income in many markets could come from mobile money. MTN Group already makes 25% of its revenue in Uganda from its mobile money offering MoMo, and 23% in Ghana. Remember that Nigeria is MTN’s biggest market, where it earns 32% of its revenue. So imagine the possibility of mobile money in Nigeria and what it could do for its future revenues.
And the more the revenue growth, the likely the chance of what is called capital gains. MTNN was N90 in 2019, it’s now selling for N169. That means there has been a capital gain of N79.
Enough, I Want to Buy. What’s the Bad News You Promised?
The Nigerian government is key in all these.
Despite listing, MTNN’s problems have not completely abated. It could run foul of the government at any time. For one, it is still paying a $53m fine over dividend repatriation in breach of the foreign exchange rules I mentioned earlier. It also cannot add more SIM card subscribers because Nigeria has stopped new sales of SIM cards. It was only in August this year that the MTN Group was able repatriate its $280 million dividends of last year. It cited challenges of securing foreign currency for this delay.
Nigerians and its government has a hate/love relationship with MTN. The diplomatic rift between Nigeria and South Africa also doesn’t help matter as its history comes back to haunt it. For instance, MTN for years said per second billing was impossible and it took the competition brought by Glo for it to change its stance. So do not be surprised if MTNN falls or is said to have fallen foul of Nigerian laws, and gets fined or penalized. The possibility is high with MTNN. This could affect the value and returns of the stock.
These are issues that investors must know about.
Also, there is inflation that affects the value of money and investment in Nigeria. N1000 today is much less than N1000 in 2019. Would investment in MTNN make up for inflation and naira devaluation? You decide.
Lemme Think About It. How Long Will The Offer Be For?
The Offer opened at 8:00 am on December 1, 2021, and is expected to close at 5:00 pm on December 14, 2021.
Through What Means Can I Buy?
- Buy through the PrimaryOffer app owned by NGX, formerly known as NSE. Download the PrimaryOffer app from the Google Play store or the Apple iOS store to your mobile device.
- Use a stockbroker. Several of them abound. I love Morgan Capital for its easy-to-use interface. Yesterday, I also recommended Cowry Assets Management Limited where my friend Isu works. Isu can advise accordingly.
All the best!
*The previous version stated that the MTN Group is unable to repatriate funds. This issue was resolved in August this year. The previous version also stated that MTN got a license for Mobile Money last month. This is incorrect. MTN already operates a mobile money service. The license it got recently was for the operation of its Payment Service Bank.