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MTNN Announces Sale of Shares, Receives Approval in Principle

Recently, the telecom giant, MTN Nigeria (MTNN), announced MTN Group’s intention to proceed with a public offer for the sale of up to 575million shares in its subsidiary, MTN Nigeria. The offer for sale in MTNN will be done vis-a-vis a bookbuild to institutional investors and fixed price to retail investors. The proposed offering is part of the 14% share sale plan by the parent company’s (MTN Mauritius) to the retail and institutional investors.

 Given the current stake of 76.1% by MTN International (Mauritius) in MTNN, the initial volume offering of 575m shares represents 3.7% of the total interest by the parent company. Following the announcement, the knee-jerk reaction by investors saw MTNN share price trade at a high of N190/s during yesterday’s trading activities. Today, MTNN notified the exchange that it has received an approval in principle (AIP), dated 4 November 2021 from the Central Bank of Nigeria, for the license application for the proposed MoMo Payment Service Bank Limited alongside Airtel Africa for its SMARTCASH Payment Service Bank

Limited.

We believe this is an interesting development for the share price as the news and the expectations around what it will do for MTN Revenue will most likely drive the share price up, which is good for MTN’s share sale. However, we note that this is only an approval in principle (AIP), which is the closest to getting the PSB license, and indicates that the CBN will issue the license should MTNN meet all requirements to be given the final approval.

Currently, MTNN will go through the AIP period (6 months window), where they are to ramp up all infrastructure needed to receive the commercial license. Thus, the least possible time for MTNN to receive the final approval will likely be in six months, May 2022, using November 4, 2021, as the start date. We recall that in September 2019, the CBN issued 3 AIPS to Glo (Glo’s Money Master) and 9Mobile (9PSB) and Unified Payments, and the companies were given 6 months deadline to meet all requirements. However, the deadline was extended, and they received the final license in August 2020.

That said, while it is difficult to estimate the impact of the PSB license on MTNN’s revenue, we believe we can make a few comparisons. First, it is safe to assume that MTNN will certainly not be replicating the kind of success telcos in many African countries with a telco led model had. For many of those telcos, at the time they kicked off, the banks did not have the vibrant payment infrastructure and agency network that Nigerian banks currently have and which MTN will be competing against. If we assume MTN replicates what FBNH (the bank with the largest agency network) can do, we estimate it will amount to c.10% of MTNN’s estimated FY 2021 total revenue.

Looking at MTNN’s financials. As of 9M 2021, MTNN reported a 23.6% y/y growth in revenue to N1.2tn (projected N1.6trn for FY 2021). Out of the total revenue, the Fintech Business contributed N50.2bn (projected N66.9bn for FY 2021), which corresponds to 4.2% of the total revenue in 9M 2021. To incorporate the impact of the PSB license, we can roughly assume they generate an additional N57.6bn (Estimated FBNH e-banking revenue for FY 2021). As of H1 2021, the Total E-banking revenue of FBNH was about N28.8b, which will roughly amount to N124.5bn for Fintech revenue of MTNN, c. 8% of its estimated FY

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