MTN full year numbers 2012

One of the most important companies that we here at Vestact have invested our clients funds in over the years is MTN, and that company reported numbers this morning for their full year to end 2012. Their earnings are now more than the share price that we initially bought the stock at, for those clients who have been around for a long time. Well, almost. In April of 2003 we were buying them around 12 Rands a share, they certainly looked expensive back then and the yield was negligible.


The company had less than 10 million subscribers back then, that number was first breached with the 2004 interims, back in August of 2004. The total subscriber base now stands at 189.3 million, that was up 15.1 percent for the year. Revenue increased 10.9 percent to 135.112 billion Rands. HEPS however only increased 1.9 percent to 1089.1 cents per share, the final dividend was 503 cents per share, up 10 percent on the year. Add in the interim payment of 321 cents and you get to a total annual dividend of 824 cents. Both the earnings and the dividend numbers are worse than the market anticipated. So, at the closing price levels of 17960 last evening, the stock trades on a historical multiple of 16.5 times and a dividend yield (before tax) of 4.5 percent. That sounds OK, more on the expected growth rates a little later in this analysis.


Voice is clearly maturing, the one thing that you expect to get cheaper over time strangely is technology. And the reason why I say ironically is because as technology improves and is adopted by more and more humans, the prices of hardware and software come under increasing pressure. Voice revenues across the group increased by 4 percent, but traffic volumes increased 24.6 percent. Cheaper call times means that people talk for longer. It is interesting to however note that voice accounts for 63 percent of total revenue, down from 65.2 percent in the prior period. Data was where huge growth was, revenues for that division increased by 58.5 percent, traffic increased however by 65.9 percent. Of course, again cheaper rates during the year. Tariffs in Dollar terms have been reduced dramatically over the last five years, whilst revenues have grown strongly.


Nigerian revenues are catching South African revenues in Rand terms, the currency weakening here relative to the Naira boosted MTN Nigerian sales. EBIDTA contributions by country sees Nigeria stand out comfortably head and shoulders above the country we live in. Collectively the two countries, Nigeria and South Africa contribute 63 percent to group EBITDA. Essentially the company operates in 22 territories, but these two, with the relatively rich South Africans and the many Nigerians are still the most important places that the company operates. Inside of all of those territories the mobile penetration rate is around 50 percent, so whilst those folks joining are at much lower ARPU's than before, the scope to grow still definitely exists.

Phew, they invest an enormous amount in their business, over 30 billion Rands last year, 6.4 billion in South Africa, 13.733 billion in Nigeria (more than double the prior year), 1.1 billion in Iran, nearly 1.1 billion in Ghana and 903 million in the Ivory Coast. A whopping 1.336 billion Rands in Sudan, which is nearly 62 percent of local revenue.


Margins have been decreasing over the last three years, but still are a very comfortable 42.9 percent of EBITDA. That is down 110 basis points since the 2010 year. Data has seen huge growth rates, but yet because most of it is being driven by South Africa, continues to be only 10.8 percent of group revenue. Smartphones on their networks have more than doubled to 21.9 million (around 11.5 percent of the overall network). This is undoubtedly where the growth is going to come from. According to the BusinessInsider and some research that they put out last year, the US now has 55 percent smartphone penetration, up from 30 percent towards the end of 2010. Expect more people to want better handsets that can do more. That will invariably lead to higher data consumption. I suspect that we are a long way away from that point however, in the commentary there is still reference to rolling out 2G networks. Yes, really. Whilst you and I might be gearing up for 4G LTE and embracing that, the poor fellows in Nigeria might be used to much slower speeds. But of course, it is coming.


The bad is an uncertain bad. "Foreign exchange losses (Iran, Syria and Sudan) negatively impacted HEPS by 178,5cps" Most of that was Syria and Iran. Strangely in local currencies Iranian revenues grew 28.8 percent, Syria only 2.9 percent and Sudan 28.2 percent. All their respective currencies. But sanctions and civil war and general unrest have hit these countries and their respective currencies. These are significant risks that always will impact the company and their rating. But I suspect that investors know this well.


The company is expected to add 21 million subscribers over the year, that is the projections, which would take them comfortably through the 200 million mark. That will mean that MTN will have a similar sized subscriber base as VimpelCom, around 7th place on the global list. You are buying this company on the basis that Sub Saharan growth rates are going to be around 5 percent per annum. Meaning that the local populations should have more earnings power to continue to consume both airtime and increasingly data. We continue to buy the stock.