Meristem Securities’ H2 outlook for Nigerian telcos

As the trading week comes to an end, Andrew Tsaku a trader at Kapital Care Trust joins CNBC Africa for a wrap of this week's sessions at the Nigerian Stock market and also breakdown some earnings. The Nigerian Stock Exchange has been a mixed bag of results this quarter, with various sectors responding differently to the challenges posed by the COVID-19 pandemic. David, a financial analyst at Meristem Securities, shared insights on the recent performance of Nigerian telcos, particularly focusing on Etisalat Africa and MTN Nigeria. In the banking sector, some companies have surprised investors with impressive performances, while the oil and gas sector has seen mixed results. However, the telco space has been a topic of interest, especially with the recent earnings releases from Etisalat Africa and the upcoming expectations for MTN Nigeria. Etisalat Africa, also known as Etisalat, reported a mixed performance in its recent earnings release. While top-line revenue saw a modest increase, this growth was primarily driven by currency fluctuations rather than organic improvements. The company experienced a decline in voice revenue due to shifting consumer behavior patterns and increased competition. On the bright side, data revenue showed a promising uptick, indicating a potential shift in consumer preferences towards data services. This growth in data revenues was observed across Nigeria, West Africa, and the Francophone regions, suggesting a positive trend for the company. On the other hand, MTN Nigeria is expected to show a more robust performance compared to Etisalat Africa. With a focus on both top-line growth and margin expansion, MTN is poised for a solid performance in the coming months. However, challenges may arise from increasing costs, particularly related to currency fluctuations and FX management. The weakening of the local currency against major currencies could impact MTN's margins and potentially slow down its overall growth trajectory. Despite these challenges, MTN remains a key player in the Nigerian telco market and is expected to navigate these obstacles with strategic planning and prudent financial management. Looking ahead, the currency remains a significant risk for telcos in Nigeria, as the fluctuating exchange rates could continue to impact their financial performance. MTN recently adjusted its FX reference rate to mitigate currency risks, but uncertainties persist regarding the extent of these challenges. The telcos will need to closely monitor currency movements and have contingency plans in place to cushion the impact of adverse exchange rate movements on their bottom line. In terms of fundraising, MTN's recent commercial paper issuance indicates a potential trend for other companies to tap into the capital markets for funding. With favorable interest rates in the local market, telcos could leverage the capital markets to secure funds at lower costs compared to traditional borrowing methods. This move could improve their liquidity positions and provide additional financial flexibility to navigate the uncertainties in the market. Overall, the second half of the year presents opportunities for Nigerian telcos to explore alternative funding sources and strengthen their financial resilience amid ongoing challenges. In conclusion, the Nigerian telco sector is facing a unique set of challenges and opportunities in the current market environment. Companies like Etisalat Africa and MTN Nigeria are adapting to changing consumer trends and currency dynamics to drive growth and profitability. As the year progresses, investors will closely monitor the performance of these telcos and assess their ability to navigate the challenging economic landscape. Strategic financial planning and proactive risk management will be crucial for telcos to thrive in the dynamic Nigerian market.