As South Africa’s nationwide energy crisis persists and economic instability arises, Africa’s largest mobile network operator, MTN Group Limited (JSE: MTN), has reported itself as no stranger to the financial repercussions associated with ongoing power cuts. The multinational mobile telecommunications giant saw load-shedding cut into the group’s bottom line with an R695-million reduction in operating profit, primarily driven by surging power outages in the second half of the 2022 financial year.
MTN’s Network Resilience Plan
While 2022 was marked with 208 days of load-shedding, of which 146 of those days occurred during the second half of the year, and with the country’s energy crisis seemingly persisting, it is no surprise that MTN has continued implementing a “comprehensive network resilience plan” to curb the devastating effects of rolling power outages in South Africa. The group initiated its network resilience plan during the second half of 2022 and looks to complete it by May 2023.
During their 2022 financial year, MTN incurred R15.39 billion in capital expenditure under the group’s network resilience plan. The telecommunications provider forecasts a further R13.24 billion to be spent on capital expenditure in 2023. Due to a worsening energy crisis, “MTN [South Africa] is working with its partners on further optimising sites to ensure consistent performance of the resilience upgrades.” In anticipation of “an increased prevalence in load-shedding,” MTN is targeting “the rollout of additional batteries, generators and enhanced security features”, with the group forecasting a rather dire outlook for both service revenue and costs in South Africa for the 2023 financial year.
Technical Analysis:
The price action on Africa’s largest mobile network operator has been consolidating sideways for the last seven months. The primary resistance and support levels are firmly at R147.00 (green line) and R117.00 (red line). Looking at the 1W chart of MTN Group (JSE: MTN), we can see the price action has been trending lower ever since the highs last seen in March of 2022.
In recent weeks, specifically throughout February 2023, the price action tested the resistance level at R147.00 per share, only to fall nearly 11% on Monday, the 13th of March, after the group reported that South Africa’s energy woes have severely disrupted operating performance, cutting the group’s EBITDA by a whopping R695-million.
For the bull case, a long-term investment opportunity could exist if the price action pushes above R147.00 (green line), which could be the first resistance point in the price for the bulls. If the price breaches this resistance level, the price action could push higher toward the R174.00 resistance level (black dotted line), a share level towards the primary price resistance of R203.00.
The bears will look for the recent downtrend to persist and the price action to decline toward the R117.00 support level (red line). If the support level does not hold, the price action could fall further toward the share level of R100.00 (black dotted line).
Fundamental Analysis:
Honing in on the group’s financial statements, MTN Group saw its revenue line item increase by 14% year-over-year, from R181.6 billion in 2021 to R207 billion in 2022, while profit before tax surged 44% year-over-year, from R28.8 billion in 2021 to R41.5 billion in 2022. Moreover, the telecommunications giant reported an impressive 40% year-over-year increase in basic earnings per share (EPS), from 763 cents in 2021 to 1071 cents in 2022. Despite robust financial performance and double-digit growth in revenue and profitability, MTN Group (JSE: MTN) saw its share price plummet nearly 11% over last week after the mobile network provider warned investors of forecasts for depressed growth in South Africa.
While group revenue grew by nearly 30% in Nigeria, MTN reported a measly 3.9% year-over-year growth in South Africa, from R48.7 billion in 2021 to R50.6 billion in 2022. MTN said that while “the extent of ongoing power outages worsened into the [second half of 2022],” the group suffered amidst “negative impacts on network availability and pressure on the business.” As the telecommunications provider navigates a turbulent macroeconomic environment in South Africa, the group aims to complete the rollout of its comprehensive network resilience plan by the end of May 2023, which will capture the attention of market participants in gauging how this project will assist MTN in mitigating the effects of load-shedding.
Summary:
Depending on how the market views MTN’s network resilience plan and how well the initiative fares in mitigating the effects of load-shedding, the possibility could exist for a long above R147.00 to the next significant resistance at R174.00, a share level towards the primary resistance of R203.00. If the recent downtrend persists, the bears will be watching to see whether the R117.00 support level holds and if not, the bears could see the price action fall to the next support level at R100.00 per share.
Sources: Businesstech, Engineering News, Moneyweb, MTN Group Limited, Trading View
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