IS MTN Nigeria at a sweetspot?

MTN Nigeria declined by 10% in yesterday’s trading session on the Nigerian Stock Exchange, closing at N90.

The price point is a significant one, as that was its listing price in May last year.

Would this be a good time to buy?

There are arguments for and against that.

The buy case

At its current price, MTN Nigeria is trading at 9 times earnings. That is slightly higher than the average price earnings ratio on the Nigerian Stock Exchange

The PE ratio simply indicates how much investors are willing to pay for a stock, with the expectation of future growth in earnings.

The hold case

While the company’s fundamentals remain decent, the macro picture as a whole for the country is uninspiring.

You have a double whammy from the Coronavirus.

Lower crude oil prices mean lower revenue for the government, and pressure on the exchange rate.

Lockdowns in several key states mean income for a lot of people will be cut.

So while the lockdown could lead to a bump in revenue, that would only be from a select base.

A devaluation (in addition to the adjustment made already by the CBN) means costs would rise for the firm.

There is a strong possibility the country could go into recession. This would reduce disposable income for workers.

From an earnings perspective, the stock is trading at an earnings yield of 11%. That is lower than the current inflation rate of 12.2%.

One could look in the direction of stocks with higher yields.

From a dividend yield perspective, the stock is trading at 8.8%.

Simply put, it would take an investor a bit over 12 years to recover their investments, if dividends were to remain constant.

A further decline in share price, would make the stock attractive using these criteria.