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.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
MoneyAfrica

We look at the financial angle. From Personal finance to finacial literacy, strategy and wealth creation. instagram.com/moneyafrica