Investors Eyeball MTN Nigeria's 575m Units New Offer

Wednesday, December 02, 2021, 04:50PM / by Adaeze Nwachukwu,Proshare Research / Header Image Credit: @MTNLoaded

In the wake of global corporate repositioning, MTN has decided toshake up the investor composition of its Nigerian operation by selling off anadditional 575m units to local Nigerian investors. The move comes off the backof its listing on the Nigerian Exchange Limited (NGX) in 2019.

The recent offer for sale corrects the earlier situation and givesmore Nigerians the opportunity to invest in the local telco market. The MTNoffer helps broaden market instruments available to local investors and deepensthe quantity of tradeable daily instruments. More tradeable equities in thecountry's largest network carrier will gradually help correct what some see asstructural market problems in establishing the company's fair market value. Thenarrow float of MTN Nigeria has supported a notion of upwardly biased marketvalues.

Floating on Shares

Investment analysts believe that the earlier absence of free floatwas mirrored by the two-week surge in the market price of the company's sharesas 'outsiders' tried to prise limited quantities of shares fromprivileged 'insiders' when the shares were listed by introduction twoyears ago.

Of Share Structure and Pricing

The MTN Group holds 78.8% shareholding in MTNNigeria andintends to sell-down a total of up to 14% shareholding in MTN Nigeria in thenear to medium-term.

The Securities and Exchange Commission (SEC) has approved theoffer for sale of up to 575m ordinary shares of MTN Nigeria. The bookbuild wasoffered to institutional investors and was one of the key factors in establishingthe retail offer prices of N169.

The 575m units of shares was valued at N100.31bn (US$241.7m) whichbrought it to N169/unit of share.

With the company offer at N169 and the stock currently selling atN190 as of November 26, 2021, on the Nigerian Exchange (NGX), an immediatehidden value opportunity of +8.92% percent was realisable.

When the telecommunications company was listed by way ofintroduction two years ago, several Nigerians complained about the absence of marketfreefloat. Inother words, few shares were available for public trading outside those held byexisting pre-listing shareholders. The early absence of tradeable shares of thecompany raised the ire of stockbrokers whose clients had lined up a war chestof cash to invest in the telco giant.

According the Telco's Chief Executive Officer (CEO), Ralph Mupita, "This is the first step in aseries of offers over the near to medium-term for MTN Group to sell-down atotal of up to 14% shareholding in MTN Nigeria".

The seller of the shares is MTN International (Mauritius) Limited.The advisers to the Offer have noted that where there is an over-subscription,15% of the total shares on offer or 86.25m shares, would be offered for furthersale subject to the approval of the SEC.

Months in the Share life of a Telco

According to analysts the Telco giant's share price has notexactly mirrored the movement of the NGX All-Share Index (ASI), as year-to-date(YTD) growth of MTN gave a recent return of +4.97% against the +2.11% return of the ASI as of 26 November 2021.

MTN's share price has grown steadily month-on-month (M-on -M),except in March when it hit a rut and sold at N160 per share. The news of anoffer for sale, sent positive messaging into the market leading to a sustainedrise in the data carriers share price.

MTN Nigeria's market Beta at 0.89 is lower than 1, indicating thata one percent rise in the ASI would likely lead to a 0.89 per cent rise in thevalue of the stock (see chart 1 below).

Chart 1: Price Movement of MTN Nigeria & ASI

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Source: NGX, Proshare Research

Equity analysts believe that the future of Nigeria'stelecommunications sector is bright. The stock gazers premise their outlook onthe prospective rollout of 5G services, the adoption and integration of fintechsolutions on mobile consumer devices, the growth of payment service banks(PSB), and the higher head room for the telco to raise the ratio of its activeinternet subscribers to the country's population, friendlier NigerianCommunications Commission (NCC)regulations (see illustration 1 below)

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Telecomcompanies must lock in their growth strategies to ensure they are not kickedout of the game. An overview of NCC's subscriber data discloses the narrowinggap between MTN and its nearest competitors- Airtel Africa and Glo. This isbecause brand loyalty currently hinges on excellent customer experience andsatisfaction. Nevertheless, looking forward, the broad bet seems to be on MTNyielding superior investor returns.