MTN Nigeria’s finances under scrutiny amid FX losses, dividend worries

Financial analysts have taken a closer look at MTN Nigeria’s (MTNN) latest financial results, highlighting the company’s strong revenue growth alongside its ongoing challenges, including foreign exchange (FX) losses, negative retained earnings, and concerns over dividend payments.

The discussion unfolded on the podcast Drinks and Mics, featuring industry experts Ugo Obi-Chukwu, CEO of Nairametrics; Samson Esemuede of Zrosk Capital; Tunji Andrew, CEO of Awabah; and Arnold Dublin Green of Cordros Capital.

Despite MTNN’s impressive revenue performance, analysts pointed out significant struggles in profitability.

“MTNN did well on the topline, with over N3.3 trillion in revenue, up from N2.4 trillion in 2023, but recorded a massive bottom-line loss of over N400 billion compared to N138 billion losses in 2023,” said Ugo Obi-Chukwu.

Arnold Dublin Green noted that MTNN made significant progress in restructuring its cost base, particularly reducing its dollar-denominated expenses.

“The renegotiation of dollar operating expenses from 45 per cent to 20 per cent was a major win, which played a role in the fourth quarter recovery,” he stated.

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However, Samson Esemuede cautioned that some of these improvements might be overstated due to a dollar-related repayment that inflated the EBITDA margin. “When adjusted, the EBITDA margin was closer to 41 per cent instead of the reported 46 per cent,” he explained.

One major concern has been the source of MTNN’s FX losses. Samson admitted that previous quarters lacked clarity, but he acknowledged that the fourth quarter results provided more transparency. “There is a sequential improvement in business, but only a couple of quarters of strong performance would confirm sustainability,” he added.

A major concern for investors is MTNN’s negative retained earnings of N607.5 billion and negative shareholders’ funds of N458 billion. By law, the company cannot pay dividends until these losses are cleared.

Tunji Andrew emphasized that uncertainty over dividend payments has kept investors from fully embracing MTNN’s improvements.

“Investors remain cautious because they are unsure when dividends will resume, despite the company’s recovery efforts,” he said.

On the other hand, Samson argued that the focus should be on MTNN’s ability to generate strong cash flow. Ugo countered that despite good cash flow, the company’s negative retained earnings remain a legal roadblock to dividend payouts.

The discussion also explored whether MTNN might need to raise equity to clean up its balance sheet. Ugo suggested this could be a necessary step.

“For a full recovery, MTNN would need at least two years of N1 trillion in back-to-back profits,” he estimated.

Despite MTNN’s forex losses and financial hurdles, analysts recognize its ability to generate strong cash flows and it’s improving financial performance.