The stock market is experiencing a bearish trend that has sent jitters down the spines of a lot of short term investors. Year-to-date the Nigerian Stock Exchange (NSE) All-Share Index declined by 6.8 per cent as at last Monday.
Most stocks have depreciated by over 50 per cent, making their prices to be very attractive for long term investors to take advantage of.
Although the bearish nature of the equities market is giving many investors concerns, the management of the Nigerian Stock Exchange (NSE) may have little to worry about.
The NSE is aware that stock markets globally fluctuate and is confidence that the Nigerian market will rebound at certain point. However, the major reason why the NSE may worry less over the current rout is the fact that its market capitalisation has received a major boost from the listing of two telecommunications companies within the last two months.
The first to list was MTN Nigeria Communications Plc, which got listed on May 16, 2019 followed by Airtel Africa Plc, which was admitted yesterday.
Before the listing of MTNN, the equities market capitalisation of the NSE stood at N10.626 trillion, while the NSE All-Share Index was at 28,286.08.
However, when MTNN had its 20.35 billion shares listed on the local bourse at N90 per share and rose to N99 per share on May 16, the market capitalisation jumped to N12.458 trillion. MTNN added N1.832 trillion to the capitalisation. And following the appreciation of shares of MTNN to N129.45 translating to N2.634 trillion, the market capitalisation further rose to N12.909 trillion as at Monday.
When the shares of Airtel Africa Plc were listed at 3.758 billion shares at N363 per share on Tuesday, it added N1.364 trillion to market capitalisation of the NSE to close at N14.273 trillion.
But for the listing of MTNN and Airtel Africa Plc, the market capitalisation of the NSE would have depreciated to N8.9 trillion. However, the stock exchange has the two telcos to thank for the high level of market capitalisation still being maintained despite the rout in the market.
Speaking on the listing of the Airtel Africa Plc, Oscar Onyema said it was a promising development in Africa with Airtel Africa being the second company to have its ordinary shares listed on both the LSE and NSE.
According to him, this gives credence to the successful partnership between the two exchanges, and encouraging similarly situated companies to explore the different opportunities for raising capital on the exchange’s platform.
Onyema said: “Airtel Africa’s listing on the NSE will not only showcase the company as an established player in the African telecommunication industry, but will enable the firm to actualise its strategic vision “To enrich the lives of customers.”
This listing is a result of many months of hard work by all parties to the transaction and will add N1.36 trillion to the market capitalisation of the exchange, further deepening the Nigerian capital market.
“It will also increase the visibility of Airtel Africa whilst differentiating its brand as a major player in the Telecommunication sector.”
The NSE boss said the exchange would continue to support the telecom industry and the real sector by promoting efficient capital formation and allocation, enabling industries to raise long-term funds for growth & expansion of their business to reduce unemployment and sustain Nigeria’s economic growth and development.
Speaking earlier on the listing of MTNN Onyema said: “We are delighted to welcome MTN Nigeria to the exchange. This listing is a promising development in the country’s telecommunications sector and we encourage other players in the sector to explore the different opportunities in the capital markets for raising long term capital.
“As a listing platform of choice, today’s listing will add to our bouquet of diverse investment offerings to the public. Having MTN Nigeria listed in our market is a testament of the exchange’s commitment to building a dynamic and inclusive market and creating channels for sustainable investment.
“This listing will promote liquidity for MTN Nigeria, enhance its value and increase transparency, as our platform remains one of the best avenues for raising capital and enabling sustainable growth for national development.”
President, NSE, Abimbola Ogunbanjo, also expressed excitement saying: “We are particularly pleased that MTN Nigeria has joined the prestigious club of companies listed on our Premium Board with this landmark transaction, which will differentiate it as a professionally run telecommunications company with high standards, having met the NSE’s listing criteria.
“A Premium Board listing is a sign of commitment to strong corporate governance, excellence, professionalism, efficiency in service delivery and providing increased returns to shareholders. It is our expectation that the MTNN, which is the NSE’s 2nd largest, will encourage other telecommunication companies to list their shares on the exchange, thereby opening the sector up to cheaper, long term capital that will boost innovation and development.”
Head, Listing Regulation of the NSE, Godstime Iwenekhai had disclosed that after the book building by Airtel Africa Plc , about 130 shareholders subscribed to issue, which is below the 300 shareholders requirement of the exchange.
Iwenekhai, however, explained that the firm had a free float of 25 per cent across the London Stock Exchange and the NSE, above the exchange requirement of 10 per cent for cross boarder listing.
According to him, the rules of the NSE’s cross boarder listing was developed in such a way that it could grant exemption or waivers to attract cross boarder listing to the exchange and deepen the market.
“The exchange cross boarder listing requirements rule also grants the exchange the powers to give exemption or waivers in every part of the rule because the rule is developed in such a way to attract cross boarder listing to the exchange.
“We have the requirements that we feel we can deploy to attract such big and foreign companies to Nigeria, the rule as approved by the SEC gives the exchange the power to grant such requirement,” he said.
Iwenekhai noted that the waiver was granted considering the fact Airtel has also listed on the LSE and must have complied with the stringent listing requirements in the foreign exchanges.
Airtel’s road to listing
Before the listing on the NSE, Airtel made an initial public offering (IPO) through a book building process to determine the eventual price and volume of shares to be sold to investors. A book building is a process of price discovery, through which the issuer ascertains the demand for the securities being issued and assesses the price at which such securities may be issued before ultimately determines the quantum of securities to be issued. The company ended up with a price of N363 per share. The shares are being offered to high networth and institutional investors.
The directors of Airtel Africa Plc said offering the shares in Nigeria and listing on the NSE would encourage operational discipline through the establishment of an independent capital structure and governance framework following the successful turnaround of the group’s operations.
“It will also facilitate measurement of the Group’s continued positive performance against holistic, publicly disclosed metrics as it enters a strong free cash flow phase; introduce an optimal capital structure and enable improved leverage for greater flexibility in pursuing growth opportunities going forward; and provide access to the capital markets and diversification of the Group’s capital base to support the Group’s continued growth. The company intends to use the net proceeds from the offer principally on the reduction of debt, in particular to achieve a targeted leverage ratio of 2.5x based on underlying earnings before interest, tax, depreciation and amortisation for the year ended 31 March 2019.
Market share and Performance
Airtel Africa has been offering mobile services in Africa since 2010 and has leveraged this experience to roll out relevant products and services across its footprint. The Group offers a range of country specific entertainment, lifestyle and general content through its VAS products. The group aims to continue positioning its non-voice businesses, in particular through its investments in value-added digital services and continued expansion of mobile money services, as an opportunity for long-term sustainable growth in response to the rapidly changing telecommunications environment in the markets in which the Group operates.
As at 31 December 2018, Airtel Africa was the second largest mobile operator in Africa by number of active subscribers, according to Ovum. The group’s footprint is well-diversified, serving an aggregate of 98.9 million subscribers and 14.2 million mobile money customers across its footprint as at 31 March 2019.
Nigeria represents Airtel Group’s largest single country subscriber base, comprising 37.6 per cent of total subscribers as at 31 March 2019.
In terms of financial performance, as the year ended 31 March 2019, revenue in Nigeria was $1.106 billion (representing 35.9 per cent of the Group’s revenue in the year) and underlying earnings before interest, tax, depreciation and amortization (EBITDA) was $550 million. In the year ended 31 March 2019, revenue in East Africa was US$1,102 million (representing 35.8 per cent of the Group’s revenue in the year) and underlying EBITDA was $442 million. Revenue in rest of Africa was $888 million (representing 28.9 per cent of the Group’s revenue in the year) and underlying EBITDA was $339 million
A further analysis of the performance showed that revenue from $2.884 billion in 2018 to $2.910 billion in 2019. This increase was primarily due to mobile data revenue growth and Airtel Money revenue growth. Profit after tax rose from $142 million to $441 million.
Airtel Africa operates in three main business lines, mobile voice, mobile data and Airtel Money. The mobile voice business line comprises pre- and post-paid wireless voice services, international roaming, fixed-line telephone services and interconnect revenue paid to the Group by other telecommunications providers. The mobile voice business line is the largest component of the group’s revenue, representing 62.2 per cent and 66.4 per cent in the years ended 31 March 2019 and 31 March 2018, respectively.
The Mobile data business line comprises data communications services, including 2G, 3G and, increasingly, 4G data services, and other VAS for mobile subscribers. The mobile data business line accounted for 22.2 per cent and 18.9 per cent of the group’s revenue in the years ended 31 March 2019 and 31 March 2018, respectively.
On an aggregated basis, the Mobile business lines before inter-product elimination and including infrastructure tower sharing income accounted for 94.8 per cent of the group’s consolidated revenue and 92.7 per cent of the group’s underlying EBITDA in the year ended 31 March 2019 and 95.4 per cent of the group’s consolidated revenue and 95.2 per cent underlying EBITDA in the year ended 31 March 2018.
On the other hand, Mobile money services, offered under the Airtel Money brand, are an increasingly important part of the Group’s service offerings. The Airtel Money business line comprises a mobile commerce service that is accessible 24 hours a day, seven days a week through customers’ mobile devices. The Airtel Money business line before inter-product elimination accounted for 7.6 per cent of the Group’s consolidated revenue and 7.3 per cent of the group’s EBITDA in the year ended 31 March 2019 and 5.2 per cent consolidated revenue and 4.1 per cent EBITDA in the year ended 31 March 2018.
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