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PSB: JP Morgan predicts boost in MTN shares



PSB: JP Morgan predicts boost in MTN shares


United Kingdom bank, JP Morgan, has foreseen a rise in the shares of Africa’s biggest mobile telecommunication service provider, MTN, following an approval by Central Bank of Nigeria (CBN) for telcos to operate a Payment Service Bank (PSB).
JP Morgan in a report said the mobile money services arrangement in Nigeria could boost MTN’s valuation by R25 a share over time.
Recall that CBN said last year it had agreed to allow network operators to apply for payment-service banking licences with MTN aiming to launch its mobile money product in the market by July.
Nigeria, till date, remains MTN’s largest market with the operator having about 58.2 million subscribers as at the end of last December.
The success story has also been laced with some controversies. In 2018, the central bank ordered the network operator to return $8.1 billion worth of dividends, just as the Federal Government also disclosed that it owed $2 billion in back-taxes.
The central bank issue has since been resolved, though it took its toll on MTN’s share price, which was at R92.92 last Monday, down 13 per cent since the monetary authority made its demand in August 2018.
JP Morgan said in a research note that if MTN Nigeria’s mobile money revenue reached 20 per cent of total revenue in the next five years, the U.S. bank saw a R25-a-share “upside opportunity” for MTN Group. This was based on mobile money margins of 35 per cent.
This represented an “attractive upside opportunity for MTN Nigeria, but may take time to scale.” JP Morgan said.
The report also revealed that Vodacom’s Kenyan associate, Safaricom, launched M-Pesa in 2007. By financial year 2011, the service contributed more than 10 per cent of group revenues, and by 2015, it made up 20 per cent of sales, the bank noted.
MTN generated R7.8 billion from fintech, or mobile money, in 2018, up almost 50 per cent from a year before.
Fintech now accounts for about 5.8 per cent of group revenues, from two per cent in 2016.
“For this to be a 10 per cent revenue contributor over the medium term, the company would need to generate around R16bn on our forecasts,” JP Morgan said.
Assuming average revenue per user of $1.50 for the service, that would imply an active mobile money subscriber base of about 60-million, from 27 million at the end of December.
“We forecast a medium-term subscriber base of almost 175-million, excluding SA and Iran. This implies mobile money penetration of just over one third – seemingly very achievable.”
MTN CEO, Rob Shuter, said last week that Nigeria’s “addressable unbanked adult population” was between 40-million and 60-million people.
In SA, where mobile money has failed to take off before, the operator planned to launch a pilot project in SA at the end of March.
This time around, the service would target rural communities that were still reliant on cash and where large segments of the population were still unbanked, Shuter said.
“We’re not trying to compete with the digital banks or the commercial banks. We are not in the same game as the Discovery, Tyme or Bank Zero. For us, the competition is cash, and if we beat cash, then everybody wins.”
MTN also planned to deploy the service in Afghanistan and Sudan in the second half of 2019, he said.

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