Telcos maintain earnings momentum amid fragile economy

The largest telecommunication companies in Africa’s largest economy have maintained earnings momentum amid a slow growing economy as they continue to increase coverage of 4G network with a view to supporting growth in data revenue.

For the first six months through June 2019, the cumulative operating profit of MTN Nigeria Plc and Airtel Africa Plc increased by 46.69 percent to N233.92 billion from N159.21 billion the previous year.

Combined revenue was up 13.60 percent to N679.19 billion in June 2019, from N597.18 billion the previous year.

Airtel Africa, which became the third largest firm by market capitalization after raising $750 million in London, saw operating profit jump by 90.10 percent to N43.52 billion in the period under review from N22.71 billion the previous year.

Margins were buoyed by voice and data revenue as the telecoms giants add customers to their data bases

while subscriber bases have improved.

Analysts also attribute the stellar performance to a stable exchange rate, thanks to the introduction of the Investors’ and Exporters’ FX window by the central bank in 2017.

“There are still opportunities for Telco’s to grow their earnings especially when they get the payment service licence from the regulator,” said Ayodeji Ebo, managing director and CEO of Afrinvest Securities Limited.

The cost control mechanism put in place by management and boards of directors yield fruit as cumulative average earnings before interest and taxation, depreciation and amortization ( EBITDA) margin, increased to 53.30 percent in the period under review from 45.25 percent the previous year.

Analysts at CSL Stock Broker Limited view the growth potentials of telecoms giants’ business as huge considering mobile penetration rate of 86 percent in the first quarter of 2019, which could help in

driving voice and data revenue.

The country’s rising population that comprise of over 60 percent youth is an opportunity for growth in data revenue given the growing usage and acceptability of social media and internet surfing for communication.

Nigeria has a population of 200 million people and the World Bank projects that it will hit 400 million by 2050.

Also, the proliferation of smartphones is expected to help underpin the data revenue growth of telecommunication companies.

The number of smartphone users in Nigeria, Africa’s biggest economy and most populous country, is forecast to grow to more than 140 million by 2025.

A rebound in consumer spending is expected to underpin data bundle consumption, which is premised on lower Average Revenue per User (ARPU) for Nigeria compared to South Africa.

MTN Nigeria, which became the second largest listed firm by market value after listing 20.30 billion of shares at N90, plans to raise N200 billion from a variety of sources including bank loans and bonds to expand operations in its biggest market.

The largest carrier by subscriber base recorded a 12.12 percent jump in revenue to N566.94 billion in the period under review while net margins moved to 17.49 percent in June 2019 from 14.75 percent the previous year.

The telecommunications sector which contributes 12 percent to GDP and recorded a strong growth of 9.65 percent in full year in 2018 still holds growth prospects given Nigeria’s impressive demographic.