The second half of last year was a nightmare for MTN shareholders. The communication stock collapsed from a high of N270 to N185, representing a 45% dip.
What could have been responsible for that sell-off?
Well!, I think it’s the normal dip that comes after a stock had rallied for a long time. MTN has maintained a bullish momentum from a 2020 low of N90 (see my buy alert on MTN).
Shareholders that bought the stock for N90 and are still holding their units in their equity portfolio, should be up by 154% as the stock exchanged hands for N229.9 as of Friday’s close.
In this review, I’d share a technical analysis of MTN, why the stock might have found a bottom, and possible regions the price may appreciate before we see another pullback
The sell-off experienced in the second half of 2022 was a normal correction that found a support level at N187 which was a key level in Jan-Feb 2021, MTN share price recovered in Nov 2022, after 3 months of consolidation, with price rallying by 10.97%, flat in Dec 2022 and currently up by 6.92% so far (as of this analysis in Jan 2023).
- MTN’s TTM revenue is N3.3tr compared to N1.65 generated in the whole of 2021 with Net income printing at N625billion against N298.6billion in the comparable period.
- EBITDA (TTM) is N1.5 trillion, up from N584.7tr. in 2021.
- Revenue on a TTM basis grew by 20%+ with net income and EPS above their comparative figure by 5%+
- Using the result of the December 2022 364-year TB auction rate of 8.49% and a risk premium of 3-5%, we can use a modest discount rate of 13% to estimate the fair value of MTN.
- EPS (TTM) currently prints at N26.1 which means the stock was fairly valued at N200 between August and November 2022.
My fair value estimate;
Between 2021 and 2022, MTN grew its profit attributable to shareholders by 40% on year on year basis, so If I assume the same year-on-year growth of 40% on its 26.1 EPS (TTM), the company is expected to report a full-year EPS within the range of N36.54 which should give us a fair value of N281
Based on the forecast, I can safely project another round of price appreciation on MTN stock to its previous high of N270 and if the stock breaks out of this resistance level on a higher-than-expected financial result, an additional volume may help sustain a further rally to N300 which is like 30% upside potential.
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