Revenue Growth Amid Bottom-Line Struggles
MTNN reported a significant increase in revenue, rising to over N3.3 trillion in 2024 from N2.4 trillion in 2023. However, the company faced substantial bottom-line losses, with a net loss of over N400 billion compared to N138 billion in the previous year. While MTNN managed to return to profitability in the fourth quarter (Q4), analysts remain divided on whether this signals a full recovery or if further challenges lie ahead.
Ugo Obi-Chukwu noted, “MTNN performed well in terms of topline growth, but the massive bottom-line loss of over N400 billion is a cause for concern.” Arnold Dublin Green highlighted the company’s progress in restructuring its cost base, particularly reducing dollar-denominated operating expenses from 45% to 20%, which contributed to the Q4 recovery. However, Samson Esemuede cautioned that the reported EBITDA margin of 46% may be overstated, suggesting an adjusted figure closer to 41% after accounting for a dollar-related repayment.
FX Losses and Clarity on Financial Performance
Samson expressed frustration over the lack of transparency regarding the sources of MTNN’s FX losses in previous quarters but acknowledged that the Q4 results provided better clarity. He emphasized that while there is a sequential improvement in the business, sustained performance over multiple quarters is needed to confirm a full recovery.
Negative Retained Earnings and Dividend Concerns
A significant issue impacting investor sentiment is MTNN’s negative retained earnings of N607.5 billion and negative shareholders’ funds of N458 billion. These figures legally prevent the company from paying dividends until the losses are cleared. Tunji Andrew pointed out that this uncertainty has kept investors cautious, despite the company’s recovery efforts. “Investors are hesitant because they are unsure when dividends will resume,” he said.
Samson countered that MTNN’s strong cash flow generation remains a positive indicator, even though dividend payments are currently restricted. Ugo, however, reiterated that the company cannot pay dividends until retained earnings return to positive territory.
Potential Equity Raise and Path to Recovery
The analysts also discussed whether MTNN might need to raise equity to strengthen its balance sheet. Ugo suggested that such a move could be necessary for a full recovery, estimating that the company would need at least two years of N1 trillion in back-to-back profits to achieve this. Samson offered a more optimistic projection, stating that with Q4 profit after tax (PAT) of N114.5 billion, an annualized growth rate of 40% could yield approximately N500 billion in 2025. He emphasized that the company does not need massive retained earnings to resume dividend payments—only a return to positive retained earnings.
Key Factors Influencing Future Performance
Looking ahead, analysts identified several factors that could shape MTNN’s performance:
- Tariff Adjustments: While potential price increases could boost revenue, they may also affect subscriber usage patterns.
- NIN-SIM Deregistration Impact: The worst of the subscriber losses may be over, which could stabilize revenue growth.
- Market Sentiment: Investors are likely to remain cautious until the company demonstrates a clear and sustained return to profitability.
Analyst Recommendations
The analysts’ recommendations leaned heavily toward a “buy” rating for MTNN, with three out of four—Arnold, Samson, and Ugo—favoring this stance. Tunji, however, recommended a “hold,” reflecting lingering concerns over dividend uncertainty and regulatory risks.
Conclusion
Even with the hurdles MTNN faces, like foreign exchange losses and negative retained earnings, analysts see the company's potential to pull in solid cash flows and improve its financial health. Samson and Arnold think the path to recovery looks brighter after the Q4 earnings report, while Ugo points out that maintaining profitability is key for long-term success. Tunji takes a more cautious approach, stressing the need to tackle dividend issues and regulatory challenges.
In the end, the general view is that MTNN could be a good pick for investors ready to handle some short-term ups and downs, with hopes for further recovery in the next few quarters. However, those focused on dividends might want to wait until retained earnings are back in the positive. As of March 7, 2024, MTNN’s share price has started to bounce back, showing a 27.9% return year-to-date after a 24% drop in 2023.