Analysis: MTN has an upside share price potential of 171%
Company Description
Scancom PLC, commonly known as MTN Ghana, is a public limited liability company first incorporated in Ghana in April 1994 and licensed by the NCA as a mobile telecommunications services’ operator.
MTN Ghana’s main revenue lines are airtime and subscription, interconnect and roaming, SMS, data, handset and accessories, mobile money, and value-added services.
MTN Ghana is currently the third most valuable stock on the GSE with a market capitalization of GH¢ 14.7 billion, which is about 21.9% of the entire Ghana Stock Exchange equity market.
MTN Ghana has a 52-week share price performance range from GH¢1.06 to GH¢1.20 and a total enterprise value of GH¢15.2 billion.
MTN Ghana has a fiscal year Gross Margin of 80% in 2022 and a current dividend yield of 10%.
Performance History
GROWTH ANALYSIS
| GH¢(Mil) | FY2019 | FY2020 | FY2021 | FY2022 | 2023E | |
| Revenue | Â Â Â Â Â Â Â Â Â 5,182 | Â Â Â Â Â Â Â Â Â 6,033 | Â Â Â Â Â Â Â Â Â 7,723 | Â Â Â Â Â Â Â Â Â Â 9,916 | Â Â Â Â Â Â Â Â Â 11,702 | |
| % Growth | 23% | 16% | 28% | 28% | 18% | |
| Cost of Sales | Â Â Â Â Â Â Â (1,237) | Â Â Â Â Â Â Â (1,377) | Â Â Â Â Â Â Â (1,624) | Â Â Â Â Â Â Â Â (1,752) | Â Â Â Â Â Â Â Â Â (2,857) | |
| % Margin | 24% | 23% | 21% | 18% | 24% | |
| Gross Profit | Â Â Â Â Â Â Â Â Â 3,945 | Â Â Â Â Â Â Â Â Â 4,656 | Â Â Â Â Â Â Â Â Â 6,099 | Â Â Â Â Â Â Â Â Â Â 8,164 | Â Â Â Â Â Â Â Â Â Â Â 8,845 | |
| Gross Margins | 76% | 77% | 79% | 82% | 76% | |
| Operating Profit | Â Â Â Â Â Â Â Â Â 2,630 | Â Â Â Â Â Â Â Â Â 3,165 | Â Â Â Â Â Â Â Â Â 4,249 | Â Â Â Â Â Â Â Â Â Â 5,774 | Â Â Â Â Â Â Â Â Â Â Â 6,007 | |
| Operating Margin | 51% | 52% | 55% | 58% | 51% | |
POFITABILITY
KEY RATIOS
| Key Ratios | 2020 | 2021 | 2022 | |
| Current Ratio | 0.96x | 1.04x | 1.05x | |
| Quick Ratio | 0.96x | 1.04x | 1.05x | |
| Cash Conversion cycle | 296 days | 243 days | 331 days | |
| Debt-to-Equity ratio | 3.26x | 3.02x | 2.86x | |
Market Comparison
| MARKET COMPARISON | ||||||||||
| Company | Ticker | Share Price | Market Cap(Mil) | EBIT Margin(2021) | ||||||
| Total Ghana PLC | TOTAL | 6.36 | 712 | 4.68% | ||||||
| Benso Oil Palm Plantation | BOPP | 10.61 | 369 | 47.70% | ||||||
| Unilever | UNIL | 3.60 | 225 | -8.30% | ||||||
| GCB | GCB | 3.15 | 835 | 34.56% | ||||||
| Calbank PLC | CAL | 0.50 | 313 | 45.85% | ||||||
| Average | 4.84 | 491 | 24.90% | |||||||
| Scancom PLC | MTNGH | 1.20 | 14,749 | 41.61% | ||||||
Valuation
VALUATION HIGHLIGHTS
MTNGH has been effective at using debt to increase its profitability. This has helped the firm maintain low Weighted Average Cost of Capital in this current economic instability.
DISCOUNTED CASHFLOW MODEL
| GH¢’000 | 2023 | 2024 | 2025 | 2026 | 2027 | ||
| Revenues | 11,702,186 | 13,809,970 | 16,297,405 | 19,232,873 | 22,697,075 | ||
| NOPAT | 4,503,505 | 5,314,671 | 6,271,943 | 7,401,638 | 8,734,812 | ||
| Unlevered Free Cashflows | 3,346,747 | 4,715,355 | 5,564,679 | 6,566,982 | 7,749,819 | ||
| Adjusted EPS | 0.366 | 0.432 | 0.510 | 0.602 | 0.711 | ||
| FCFF Per Share | 0.272 | 0.384 | 0.453 | 0.534 | 0.631 | ||
With the outstanding figures in the table above, the worth of MTNGH Share for its lifetime at a WACC of 17.51% and a long-term growth rate of 1.80% is GH₵3.25 which is above its trading price of GH₵1.20
Additionally, the one-year short-term target price is projected at GH¢1.27 from a forward EPS of 0.366
| SCANCOM(MTN) PLC | |||
| Equity Value | Â Â Â Â Â Â 39,970,599 | ||
| Shares Outstanding | Â Â Â Â Â Â Â 12,290,474 | ||
| Implied Share Price | 3.25 | ||
| Share Price (21/03/2023) | 1.20 | ||
| Upside | 171% | ||
| SHORT-TERM RECOMMENDATION | ||
| Forward EPS | 0.366 | |
| P/E | 3.46x | |
| SHARE PRICE | 1.27 | |
| UPSIDE | 6% | |
Market & Economic Analysis
MARKET ANALYSIS
MTNGH share outperforms the Ghana Stock Exchange Composite Index with a YTD percentage upside of 36.36% as against the GSE-CI Year-To-Date upside of 11.00%.
MTNGH is the most highly traded company on the Ghana Stock Exchange with more than 90% of the traded volume on the exchange. This makes trading MTNGH share more attractive and has less market risk exposure.
ECONOMIC ANALYSIS
GDP Growth: The full year GDP Growth in Ghana is expected to reach 2.80% by the end of 2023, according to Trading Economics global macro models. The Ghanaian economy is expected to bounce back quickly when the IMF deal pushes through.
Inflation: Inflation has slowed to 52.80% in February, 2023 as against the high of 53.60% in January, 2023.
This ease reflects the current stability of the cedi, the falling international oil prices and the BoG Gold for Oil initiative.
Government Debt: Public debt stock to GDP is expected to reach 86% by the end of 2023 according to Trading Economics global macro models. However, the successful exchange of government bonds for new bonds between the Government of Ghana and the domestic bondholders will help cool down the government huge debt obligations.
Implication
The IMF deal will force the government to cut down expenditure, encourage the growth in exports, and local production and consumption.
The Bank of Ghana is expected to cut the key monetary policy rate to help boost borrowing, production and investment to cause real growth in the economy.
Investors looking to diversify their portfolio will fall on equity investment which MTNGH has the best performance in terms of greater profitability and higher share performance with minimal risk.
Recommendation
I recommend a Long-term BUY position and a short-term BUY position for the shares of MTNGH at GH¢3.25 and GH¢1.27 respectively, above the current trading price of GH¢1.20 due to the efficient cost management structure, strong liquidity, greater profitability and the growing customer base.
Disclaimer: This document does not constitute an offer to buy or sell any securities, nor is it meant to encourage an offer to do so. It is for educational purposes only. Before purchasing any security, investors are urged to consult with their respective investment houses for independent advice. This document’s facts and opinions were gathered from or arrived at after doing our best to rely on credible sources. Although great care has been taken in the preparation of this paper, the Young Investors Network, as well as any team member, make no guarantees as to the accuracy of the information included within. This report’s conclusions and projections are subject to change after publication at any moment without prior notice.
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