Delivering a digital future 

In this report, we discuss the investment case for the Nigerian Telecommunications sector, with a key focus on the Mobile Network Operators (MNOs). We see value in MTN Nigeria (MTNN), which we recommend as a BUY with a Target Price (TP) of N266.17/s. By contrast, we think Airtel Africa's (AIRTELAFRI) valuation is demanding at current levels; we place a SELL rating on the stock with a TP of N793.84/s. 

Underpenetrated market presents a key long-term growth opportunity. Despite having the largest subscriber base in Africa, Nigeria is still behind when it comes to mobile penetration (the percentage of the population that are mobile subscribers). The population is young, aspirational and most importantly, growing and telcos are very well positioned to take advantage of this. In addition, the COVID-19 pandemic has demonstrated the critical importance that telecom plays in keeping businesses, governments, and societies connected and running. A shift in consumer patterns is likely to increase demand for telecoms over the long term. 

MTN Nigeria is our top pick. We believe MTNN offers greater upside potential than AIRTELAFRI and stronger fundamentals through the cycle. We view MTNN as a growth company. It has invested heavily in expanding its network and consolidating its market leadership. Despite the high capex intensity, its Free Cash Flow (FCF) margin has remained positive, and this has been supportive of cash dividend payments.We forecast the company will achieve EPS CAGR of 19.7% in FY20-25f. We believe MTNN is likely best positioned to monetise mobile money. As such, there is potential upside to our forecasts and valuation from the start of its Payment Service Bank (PSB) operations from H2 2022.

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