MTN is Ayoba!

Yesterday morning there were numbers out for MTN for their half year ending June 2014. The market clearly liked them as the stock finished 2.8% up. Here are some of the highlights of the interim results, revenue is up 4.1%, data revenue is up 33.1%, margins widened 3.5 percentage points, EBITDA is up 10.6% and the interim dividend is up 20.3% taking the dividend yield to the 5% mark.


One area of "concern" or better said, the one negative of the results came from the overall South African performance. South African revenue was down by 7% compared to the same time last year. There were two big reasons for the drop, the first is the drop in the interconnect rates, down 30% and then a drop in customers by around 450 000 people. That may sound like a big number but considering that MTN has over 23 million South African customers, it is a little under a 2% drop (pre-paid down 4.3%, post-paid up 4.6%). Also the customers moving are the low margin pre-paid customers who "flip-flop" between networks.


Looking at MTN from a group level, South Africa is not the main revenue or profit generator. MTN has revenues of R 72 759 billion for the 6 months, with "only" R19 157 billion coming from South Africa. Nigeria contributed R 27 099 billion with margins nearly double that of South Africa. So as much as MTN is a South African company, what happens here is less and less important. Margins in South Africa dropped by 1.5 percentage points to 33.3%, compared to Nigeria who grew margins by 1.9 percentage points to 60.1%.


The future of the company, arguably making them the most important figures to look at are the data figures. The increase in data revenue of 33.1% came partly from the increase of data users by 7.3% to 88.5 million users. The total number of MTN users currently is sitting around 215 million, so the data users have to more than double to match that number. The next place where the growth comes from is that current users are using more data and will continue to. We are an information driven society and as internet speeds increase we consume more data.


This can be clearly seen through the following snippet from the results, "Data traffic across the network grew by 84,8% to over 47 000 TB" and "At the end of June 2014, there were 38,5 million smartphones on our network, an increase of 31,6% from the same period last year." Smartphones are data gobbling machines and there is still huge room to grow the number of people with smartphones!


All the growth in data consumption and revenue is alongside a dropping price of the data. In South Africa, "Data revenue, including MTN Business, increased by 13,7% to R4 483 million and contributed 23,4% to total revenue. This was a satisfactory result despite a decrease of 38,1% in the average price..." There is huge upside in terms of the number of people who still need access to data, as well as increased consumption from current users. The growth rates are surpassing the price drops, prices can also only go so low.


The group is also spending large amounts of cash on CAPEX, R 9.2 billion, partly going toward 1 716 2G towers and 2 232 3G towers. Scary to think that there are still areas that don't have 2G!


As far as the voice to data mix goes, voice still represents 72.7% of revenue down from 74.1% at the same time last year. The number of minutes that consumers are using are stable and I would think will stay that way.


Looking at the growth potential of data and considering that the stock is on a P/E of 16, forward at 13 and with a dividend yield of 5%, definitely a stock that should be in your portfolio.