Scancom PLC.

(MTNGH)
MTNGH: Spins its wheels
Initiation of Coverage: BUY| TP: GHS 0.90| Current Price: GHS 0.56
Equity: 26 Jun 2020
Initiation of Coverage-We initiate coverage of Scancom PLC. (MTNGH)—the largest telecom
services operator in Ghana with a Buy rating. This is based on a target price (TP) of GHS 0.90,
offering an upside potential of ~63% from its closing price of GHS 0.56 on 25 June 2020. With a
potential return of ~40% in a worst case scenario, 1NCA’s recent declaration of MTNGH as a
2
SMP does not change our view that the company is significantly undervalued. The company
Stock Data
has been spinning its wheels since 2013; even harder after its 3IPO in 2018. We think that it is Current Price GHS GHS 0.56/USD 0.10
time for the market to reward the efforts of the company. (see our view on 1NCA’s impending Target Price (TP) GHS 0.90/USD 0.16
Rating BUY
measures in the telecom sector)
Total return potential % 73%
52-Week Range GHS 0.55-GHS 0.73
Our Buy rating is informed by MTNGH’s leadership position in telecom services; strong balance Market cap GHS 6.88bn /USD 1.22bn
sheet—transforming to capture growth; and robust cash generation. MTNGH trades at ~4.4x Free Float % 10%
Bloomberg Ticker MTNGH GN
2021PE (peers: ~10.1x) for a ~20% 3yr EPS CAGR (peers: ~11%). We are positive on margin
Refinitiv Ticker MTNGH
expansion as the company continues to improve margin above peers with cost-cutting ROE (2020E) % 40.6%
initiatives. (see our buy recommendation in key charts) Net debt to Eqty (Dec2019A) (pre IFRS 16) 1.7%

A leader in telecom services-MTNGH has gained ~730bps+ market share in voice services
and ~2500bps+ market share in data services from 2015 to 2019 (4peers had a declining market
share) while recording 98% share in mobile money transaction value in 2019. We think that the
company’s leading position in local telecom services drives operating densities and should allow
Price performance
it to sustain its ~1000bps higher revenue growth and EBIT margin vs 5peers, in our view.

Strong balance sheet; transforming to capture growth-We think that MTNGH is well 45.00 1.00
40.00
positioned to stay ahead of the curve despite regulatory headwinds given; an extensive track 0.90
35.00
record of being a pacesetter in the industry; and an estimated GHS 3.5bn in balance sheet 30.00 0.80
25.00
firepower (~50% of market cap), re-leveraging to 1.1x Net debt/EBITDA. Furthermore, the 0.70
20.00
company is actively transforming its portfolio mix towards data which we see as driving the next 15.00 0.60
10.00
wave of growth. (6Global mobile data traffic estimated to reach 160 exabytes per month by 5.00
0.50

2025) 0.00 0.40

Dec-18

Jun-19

Dec-19

Jun-20
Sep-18

Sep-19
Mar-19

Mar-20
Robust cash generation and a headroom in Free Cashflow (FCF)-MTNGH has consistently
delivered incremental FCF since 2013 while continuing to invest in capex and other network Volume (GHSm) Price (GHS) (rhs)
expansion initiatives. (5yr avg. growth in FCF ~39% vs ~29% growth in capex). Robust FCF
generation has been underpinned by strong revenue growth; margin increment and significant
earnings quality. At current share price, we believe management’s 60-80% target payout is
achievable given significant upside potential in FCF headroom.

Valuation: record discount to peers despite strong growth-MTNGH trades at ~50%

discount to peers vs a 1-year historical average discount of ~40%. We think that a wider discount ~approximately
1
is unjustified given strong growth prospects. 2
National Communications Authority
Significant Market Power
3
Initial Public Offering
Estimates (Dec) GHp FY18A FY19A FY20E FY21E 4
local peers
5
listed peers (MTN Group, Vodacom, Telecom Egypt)
Diluted EPS (adjusted) 0.07 0.09 0.10 0.13 6
Ericsson estimates
EPS change (YoY) 33.4% 10.9% 26.9%
Dividend/Share 0.12 0.05 0.06 0.08

Valuation (Dec) FY18A FY19A FY20E FY21E

P/E 11.7 x 7.8 x 5.6 x 4.4 x
Free Cash Flow Yield 4.4% 9.1% 13.1% 16.4%
Dividend Yield 15.5% 7.8% 11.5% 14.6%
EV/EBITDA 5.6 x 3.7 x 2.7 x 2.3 x
EV/EBIT 7.9x 5.3x 3.5x 3.0x
Source: Black Star Research

The information has been compiled from sources we believe to be reliable but do not hold ourselves responsible for its completeness. Descriptions are not intended to be complete and cannot be
guaranteed to be accurate; therefore, Black Star Research does not assume any legal liability or responsibility for any inaccuracies or misrepresentations contained in this report. Investors should consider
this report as only a single factor in making their investment decision. Refer to Target Price (TP) Basis/Risk on page 28, Analyst Certification on page 28, Important disclosures on page 29, product offerings
of Black Star Brokerage on page 29.
MTNGH at a glance

Key Income Statement Data (Dec) FY18A FY19A FY20E FY21E FY22E Company Sector
GHSm
Sales 4,218.8 5,181.8 6,128.5 7,260.4 8,480.0
EBITDA Adjusted 1,591.1 2,633.9 3,136.0 3,697.2 4,379.0 Telecom Services
Depreciation & Amortization (463.6) (801.5) (698.6) (827.7) (966.7)
EBIT Adjusted 1,127.6 1,832.4 2,437.4 2,869.5 3,412.3 Company Description
Net Finance Cost (44.9) (385.5) (693.8) (665.2) (638.7)
Tax Expense (270.6) (363.2) (435.0) (550.2) (692.5) MTNGH is the largest telecom services operator in Ghana by
Net Income (Adjusted) 758.2 1,011.5 1,222.8 1,552.4 1,962.4
revenue and subscriber base and a subsidiary of MTN Group
Average Full Diluted Shares Oustanding 11,254.8 11,254.8 12,290.5 12,290.5 12,290.5
Key Cash Flow Statement Data FY18A FY19A FY20E FY21E FY22E South Africa. In 2019, it recorded ~GHS 5bn in revenues of
Cash generated from operations 1,616.4 2,554.9 3,086.0 3,622.5 4,313.5 which ~45% is derived from voice services, ~28% from Data
Interest income 24.5 44.4 72.3 80.7 91.5 services, and ~19% from Mobile money services (MoMo)
Interest expense (69.0) (366.6) (766.1) (746.0) (730.2)
while the balance is from other services. This accounted for
National stabilization levy (55.7) (70.3) (85.8) (101.6) (118.7)
Company tax paid (338.0) (607.5) (435.0) (550.2) (692.5) ~9% revenue contribution to group. Despite the competitive
Cash Flow From Operations 1,178.2 1,554.8 1,871.4 2,305.5 2,863.6 nature of the industry, the company has grown its market
Capital Expenditure (783.5) (836.5) (969.6) (1,181.3) (1,376.5) share more than any local peer over the last 5 years. MTN’s
Receipt from dispoal of PP&E 0.6 0.2 0.3 0.3 0.3
network coverage is extensive, covering all 10 regional
Cash Flow From Investing (782.8) (836.3) (969.2) (1,181.0) (1,376.1)
Share issuance/(repurchase) 1,096.1 - - - - capitals, major cities, many rural and remote areas.
Changes in borrowings 100.0 65.0 56.0 67.2 80.6
Dividend paid (1,381.8) (614.5) (792.5) (1,006.8) (1,371.2) Investment Thesis
Other CFF - (119.0) (119.0) (119.0) (119.0)
Cash Flow from Financing (185.7) (668.6) (855.6) (1,058.7) (1,409.6) Our Buy rating is underpinned by MTN GH’s: i) entrenched
Total Cash Flow (CFO+CFI+CFF) 209.7 49.9 46.6 65.8 77.9
position in telecom services; ii) strong balance sheet and
Key Balance Sheet Data FY18A FY19A FY20E FY21E FY22E
Property, Plant & Equipment 2,549.1 3,018.0 3,232.2 3,522.2 3,861.1 portfolio transformation to capture growth; and iii) robust
Intangible assets 418.5 448.3 485.0 528.6 579.5 cash generation.
Other-Non-Current Assets 92.9 1,695.7 1,715.4 1,735.1 1,754.7
Inventories 10.3 15.8 16.8 29.8 34.8
Accounts receivable 370.0 378.4 419.8 596.7 697.0
Cash and Equivalents 406.5 458.7 505.3 571.1 649.0
Other Current Assets 369.5 3,943.7 4,079.7 4,204.2 4,338.4
Total Assets 4,216.9 9,958.7 10,454.2 11,187.8 11,914.5
Borrowings 438.9 505.4 561.4 628.6 709.3
Other Non-Current Liabilities 314.2 1,908.8 1,789.7 1,670.7 1,551.6
Accounts payable 911.1 1,055.9 1,225.7 1,452.1 1,611.2
Other Current Liabilities 142.3 3,684.8 3,646.7 3,663.7 3,682.0
Total Liabilities 1,806.5 7,154.8 7,223.6 7,415.1 7,554.1
Total Equity 2,410.4 2,803.8 3,230.6 3,772.7 4,360.4
Total Equity & Liabilities 4,216.9 9,958.7 10,454.2 11,187.8 11,914.5
Business Performance FY18A FY19A FY20E FY21E FY22E
Return on Equity 35.4% 38.8% 40.5% 44.3% 48.3%
Return on capital employed 30.6% 34.3% 35.9% 39.4% 43.4%
Operating margin 26.7% 35.4% 39.8% 39.5% 40.2%
Free Cash Flow GHSm 394.8 718.3 901.8 1,124.1 1,487.2
Quality of Earnings FY18A FY19A FY20E FY21E FY22E
Cash Realization Ratio 1.56x 1.54x 1.53x 1.49x 1.46x
Asset Replacement Ratio 1.69x 1.04x 1.39x 1.43x 1.42x
Tax Rate 25.1% 25.2% 25.0% 25.0% 25.0%
Net Debt/Equity 1.3% 1.7% 1.7% 1.5% 1.4%
Interest Cover 13.17x 5.69x 4.09x 4.95x 5.99x
(EBITDA-CapEx)/Interest expense 6.67x 3.88x 2.82x 3.37x 4.11x

Source: Black Star Research

2|Page
 MTNGH Buy recommendation in key charts
Chart 1: MTNGH has gained ~730bps+ market share in voice services Chart 2: …and gained ~2500bps+ market share in data services
Voice services market share % vs local peers Data services market share % vs local peers

60.0% 80.0%
70.0%
50.0%
60.0%
40.0%
50.0%
30.0% 40.0%
30.0%
20.0%
20.0%
10.0% 10.0%
0.0% 0.0%
MTN Peers MTN Peers

2015 2019 2015 2019

Chart 3: The company is growing revenue and reducing cost Chart 4: ...which is leading to peer topping margins
Revenue vs opex/revenue % EBIT margin vs peers %

15,000 51.0% 50.0%

41.0% 40.0%
10,000
31.0% 30.0%
21.0% 20.0%
5,000
11.0% 10.0%
0 1.0%
0.0%

Revenue GHSm Opex/revenue % (rhs) MTN GH MTN GROUP

VODACOM TELECOM EGYPT

Chart 5: Margin expansion is maintaining ROCE above peers Chart 6: …yet, MTN is now at ~50% discount to peers, unjustified in our view
Return on capital employed (ROCE) vs peers Forward PE
8.5 x
50.0%
8.0 x
40.0%
7.5 x
30.0%
7.0 x
20.0%
6.5 x
10.0%
6.0 x
0.0%
5.5 x
Jul-19
Jun-19

Jun-20
Nov-19

Feb-20

Apr-20

May-20
Aug-19

Sep-19

Dec-19

Jan-20

Mar-20
Oct-19

-10.0%
-20.0%

MTN GH MTN Group VODACOM TELECOM EGYPT Fwd PE Avg. 1+STD 1-STD BSR2020E

Source: Black Star Research, Company report, National Communications Authority. NOTE: Market share is based on voice subscription trends, local peers include Airtel Tigo, Vodafone, Glo
Mobile, and Expresso, listed peers are MTN GROUP, VODACOM, TELECOM EGYPT

3|Page
Significantly undervalued despite regulatory headwinds
MTNGH is the largest listed telecom company by market capitalization in Ghana. The company was listed On the 1GSE in
2018 amidst high expectation and a flurry of interest from both local and foreign investors. However, even though the
company has been reporting better than expected numbers year on year, the stock price has been in reverse. The relatively
strong performance has not been reflected in the stock price leaving the company proverbially spinning its wheels. To add
to investors’ concerns, the telecom regulator (2NCA) declared MTNGH as a Significant Market Power on 08 June 2020 with
the intention to introduce measures to ensure a level-playing field for all telecom services operators.

In our view, we do not see the declaration having a significant impact on MTNGH’s execution in the near-term. We think
that the company has earned its market dominance by making the right investments (hiring the right people, expanding
its infrastructure, efficient strategy execution and product diversification). As such, any pricing differential between
MTNGH and its local peers may not be enough to influence customers to switch to other service providers. Prior to 2NCA’s
announcement, our base case scenario was a potential return of ~73% in the stock over the next 12-months. Having
reviewed our assumptions after the regulator’s announcement, we think that there is still a potential return of ~40% in a
worst case scenario (see sensitivity analysis on page 5). In conclusion, 2NCA’s announcement does not change our view
that MTNGH is significantly undervalued. The company has been spinning its wheels since 2013; even harder after its 3IPO
in 2018. We think that it is time for the market to reward the efforts of the company.

Key Catalysts—customer stickiness despite regulatory threat, continuous surge in data usage as work from home policy
persists, strong earnings results, continuous investment in network expansion initiatives
Key Risks— faster than expected loss of market share across segments on the back of 2NCA’s impending measures,
lower subscriber growth leading to higher churn rate, a deviation of dividend yield from expectation

Summary investment case

Undisputed leadership in telecom services-MTNGH has gained ~730bps+ market share in voice services
and ~2500bps+ market share in data services from 2015 to 2019 ( 4peers had a declining market share) while
recording 98% share in mobile money transaction value in 2019. The company’s leading position in local
telecom services which is showing a strong relationship with profitability drives operating densities and should
allow it to sustain its ~1000bps+ higher revenue growth and EBIT margin vs 5peers, in our view. In an industry
where scale and density are key to driving efficiencies, we believe MTNGH is well placed.

Strong balance sheet; transforming to capture growth-We think that MTNGH is well positioned to stay
ahead of the curve despite a looming regulatory headwind given; an extensive track record of being a
pacesetter in the industry; and an estimated GHS 3.5bn in balance sheet firepower (~50% of market cap), re-
leveraging to 1.1x Net debt/EBITDA. While the company runs a conservative balance sheet, we see scope for
higher leverage, in particular given a relatively lower interest rate environment caused by the covid-19
pandemic and a dip in the company’s return on equity profile (FY14A: 45% vs FY19A: 39%). Furthermore, the
company is actively transforming its portfolio mix towards data which we see as driving the next wave of
growth. (6Global mobile data traffic estimated to reach 160 exabytes per month by 2025)

Robust cash generation and a headroom in FCF-MTNGH has consistently delivered incremental FCF since
2013 while continuing to invest in capex and other network expansion initiatives (5yr avg. growth in FCF ~39%
vs ~29% growth in capex). Robust FCF generation has been underpinned by; strong revenue growth; margin
increment and significant earnings quality. At current share price, we believe management’s 60-80% target
payout is achievable given significant upside potential in FCF headroom.

Valuation: wide discount despite significant upside potential than peers-MTNGH trades at ~50%
discount to peers vs a 1-year historical average discount of ~40%. We think that a wider discount is unjustified
given strong growth prospects.
~approximately
1
Ghana Stock Exchange
2
National Communications Authority
3
Initial Public Offering
4
local peers
5
listed peers (MTN Group, Vodacom, Telecom Egypt)
6
Ericsson estimates

4|Page
VALUATION: ~73% Total potential return
Our TP of GHS 0.90/sh is derived from a two-stage DCF model. Stage One (2020E-24E) reflects our near-term
estimates, while Stage Two (2025E-Terminal) assumes steady-state assumptions to terminal date. We assume a WACC
of 22% (including a risk-free rate of 19.2%, equity risk premium of 10%) and terminal growth of 4.5%.

At our TP, MTNGH would trade at ~7.1x FY21E PE, which is ~30% discount to peers—unjustified, in our view, given
higher returns and significant ROCE upside potential than peers (see peer benchmarking on page 8).

DCF Assumptions (GHSm) Historical Forecast Terminal

DCF and valuation scenarios FY13A FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E FY24E FY25E
Revenue GHS 1,752.6 GHS 1,993.4 GHS 2,315.7 GHS 2,773.2 GHS 3,423.6 GHS 4,218.8 GHS 5,181.8 GHS 6,128.5 GHS 7,260.4 GHS 8,480.0 GHS 9,670.7 GHS 10,984.0 GHS 12,082.4
Growth % 13.7% 16.2% 19.8% 23.5% 23.2% 22.8% 18.3% 18.5% 16.8% 14.0% 13.6% 10.0%
EBIT (adjusted) 504.0 634.3 650.3 891.0 1,016.5 1,127.6 1,832.4 2,437.4 2,869.5 3,412.3 3,852.0 4,377.6 4,228.9
Margin % 28.8% 31.8% 28.1% 32.1% 29.7% 26.7% 35.4% 39.8% 39.5% 40.2% 39.8% 39.9% 35.0%
Tax (reported) (125.0) (126.8) (161.1) (236.9) (212.4) (270.6) (363.2) (435.6) (550.8) (693.1) (808.3) (943.7) (1,057.2)
Effective tax rate (% of EBIT) 25.1% 24.9% 25.9% 28.9% 21.7% 25.1% 25.2% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
NOPAT (adjusted) 377.5 476.3 482.2 633.7 796.4 844.9 1,371.2 1,828.0 2,152.1 2,559.2 2,889.0 3,283.2 3,171.6
Growth % 26.2% 1.2% 31.4% 25.7% 6.1% 62.3% 33.3% 17.7% 18.9% 12.9% 13.6% (3.4%)
D&A 153.6 191.0 285.9 258.4 359.9 463.6 801.5 698.6 827.7 966.7 1,102.5 1,252.2 1,329.1
D&A/Revenue % 8.8% 9.6% 12.3% 9.3% 10.5% 11.0% 15.5% 11.4% 11.4% 11.4% 11.4% 11.4% 11.0%
CapEx (gross) (351.1) (325.4) (509.0) (863.3) (512.9) (783.5) (836.5) (969.6) (1,181.3) (1,376.5) (1,567.0) (1,777.1) (1,594.9)
CapEx/D&A % 228.6% 170.3% 178.0% 334.1% 142.5% 169.0% 104.4% 138.8% 142.7% 142.4% 142.1% 141.9% 120.0%
Operating WC change 42.3 (170.9) (33.6) 51.9 (136.1) 4.3 (49.6) (46.5) (71.2) (62.0) (25.4) (47.6) (60.4)
Operating WC change /Revenue % (2.4%) (8.6%) (1.5%) 1.9% (4.0%) 0.1% (1.0%) (0.8%) (1.0%) (0.7%) (0.3%) (0.4%) (0.5%)
Unlevered Free Cash Flow GHS 222.3 GHS 171.0 GHS 225.5 GHS 80.7 GHS 507.3 GHS 529.2 GHS 1,286.7 GHS 1,510.6 GHS 1,727.3 GHS 2,087.5 GHS 2,399.1 GHS 2,710.7 GHS 2,845.4
Growth (23.1%) 31.9% (64.2%) 528.5% 4.3% 143.1% 17.4% 14.3% 20.9% 14.9% 13.0% 5.0%
% FCF Conversion 33.8% 20.7% 24.1% 7.0% 36.9% 33.3% 48.8% 48.2% 46.7% 47.7% 48.4% 48.1% 51.2%
Capital Employed 1,167.1 1,252.5 1,396.2 1,844.6 2,457.6 3,063.5 4,938.0 5,246.3 5,670.0 6,139.1 6,592.5 7,142.8 7,142.8
ROCE 32.3% 39.4% 36.4% 39.1% 37.0% 30.6% 34.3% 35.9% 39.4% 43.3% 45.4% 47.8% 44.4%

Period Start 1 2 3 4 5 6
Year end Jun-20 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Dec-25
# of Days in Period 199 365 365 365 366 365
Fraction of 1 Year 0.5 1.0 1.0 1.0 1.0 1.0
Cumulative Years 0.5 1.5 2.5 3.5 4.5 5.5
Discount factor 0.90 0.74 0.60 0.49 0.40 0.33
Discounted Cash flow GHS 1,355.4 GHS 1,270.4 GHS 1,258.4 GHS 1,185.4 GHS 1,097.3 GHS 944.1
Terminal Value GHS 16,991.2

DCF Assumptions summary FY20E-24E Terminal WACC Calculation Valuation based on various Fair Values (FY21E)
Revenue growth 16.2% 10.0% Risk free rate 19.2% Share value 0.73 0.81 0.90 0.95 1.00
EBIT (adjusted) margin 39.8% 35.0% Cost of debt (after tax) 15.0% P/E 5.8 x 6.4 x 7.1 x 7.5 x 7.9 x
Capex/D&A 141.6% 120.0% Div Yield 11.2% 10.1% 9.1% 8.6% 8.2%
FCF Conversion % 47.8% 51.2% Equity risk premium 10.0% FCF Yield 12.5% 11.3% 10.1% 9.7% 9.2%
Beta 0.90 EV/EBITDA 2.9 x 3.1 x 3.4 x 3.6 x 3.8 x
Terminal growth rate 4.5% Cost of equity 28% EV/CE 1.9 x 2.1 x 2.2 x 2.3 x 2.4 x
# shares 12,290.5
Net debt/(cash)-IFRS 16 (t-1) 1,755.4 Sensitivity Analysis: Fair value based on WACC and Terminal Growth rates
DCF Calculations FY20E Market cap 6,882.7 WACC
Sum of PV of cash flows 7,111.0 Enterprise value GHS 8,638.1 0.90 20.0% 21.0% 22.0% 23.0% 24.0%
Growth rate

PV of terminal value 5,637.7 Debt % (IFRS 16) 44% 3.0% 0.98 0.92 0.86 0.81 0.76
Terminal

Enterprise value GHS 12,748.7 Equity % 56% 3.5% 1.00 0.93 0.87 0.82 0.77
Net debt/(cash)-IFRS 16 (2020E) 1,645.2 4.5% 1.04 0.97 0.90 0.85 0.79
Minorities 0.00 Estimate WACC 22.3% 5.0% 1.06 0.99 0.92 0.86 0.81
Defined Pension deficit 0.00 Modelled WACC 22.0% 5.5% 1.09 1.01 0.94 0.87 0.82
Equity value GHS 11,103.5
Number of shares 12,290.5 Sensitivity Analysis: Total return based on Terminal Revenue growth and EBIT margin
Equity value per share GHS 0.90 Terminal revenue growth
Current share price 0.56 72.9% 5.0% 7.0% 10.0% 11.0% 12.0%
EBIT margin
Terminal

Upside/(Downside) % 61.3% 35.0% 68.5% 70.2% 72.9% 73.7% 74.6%

Total potential return % 72.9% 33.0% 62.7% 64.3% 66.8% 67.6% 68.4%
Rating BUY 31.0% 56.9% 58.4% 60.7% 61.4% 62.2%
29.0% 51.1% 52.5% 54.6% 55.3% 56.0%
25.0% 39.4% 40.6% 42.4% 43.0% 43.6%

Source: Black Star Research. NOTE: We use gross capex in our modelling to be consistent with peer comparison

MTNGH at a record discount to peers and history despite strong growth

MTNGH trades at ~4.4x 2021E PE (peers: ~10.1x) for a 20% 3yr EPS CAGR (peers: ~11%)—which is ~50% discount to
peers vs a 1-year historical average discount of ~40% despite strong growth (earnings, margins, ROCE). We think
that a wider discount to peers is unjustified given significant upside potential than peers.

5|Page
 Current market valuation of MTNGH is dislocated from its fundamentals-MTNGH trades at ~4.4x FY21E PE
(peers: ~10.1x) for a ~20% 3yr EPS CAGR (peers: ~11%). This is ~ 50% discount to peers vs a 1-year historical average discount
of ~ 40%. Peers now trade at a premium to their 1-year historic levels despite lower earnings growth, margins, and ROCE
compared with MTNGH (see peer benchmarking on page 8). As a result, we find MTNGH’s discount valuation to peers
fundamentally unjustified. In our view, current market valuation of the stock is dislocated from its fundamentals.

Chart 7: MTN GH: Forward PE (1yr history) Chart 8: AIRTEL AFRICA: Forward PE (1yr history)

8.5 x 9.0x

8.0 x 8.0x
7.0x
7.5 x
6.0x
7.0 x
5.0x
6.5 x 4.0x
6.0 x 3.0x
5.5 x 2.0x
Jul-19
Jun-19

Jun-20
Nov-19

Apr-20
May-20
Aug-19
Sep-19

Dec-19
Jan-20
Feb-20
Mar-20
Oct-19

Fwd PE Avg. 1+STD 1-STD BSR2020E Fwd PE Avg. +STD -STD

Chart 9: TELECOM EGYPT: Forward PE (1yr history) Chart 10: MTN GROUP: Forward PE (1yr history)

6.5x 13.0x
12.0x
6.0x
11.0x
5.5x 10.0x
5.0x 9.0x
8.0x
4.5x 7.0x
4.0x 6.0x
5.0x
3.5x 4.0x
3.0x 3.0x
Jul-19
Jun-19

Nov-19

Apr-20

May-20
Aug-19

Dec-19
Sep-19

Jan-20

Feb-20
Mar-20
Oct-19
Jul-19
Jun-19

Jun-20
Apr-20

May-20
Aug-19

Nov-19

Dec-19
Sep-19

Jan-20

Feb-20
Mar-20
Oct-19

Fwd PE Avg. +STD -STD Fwd PE Avg. +STD -STD

Chart 11: VODACOM: Forward PE (1yr history)

14.0x
13.0x
12.0x
11.0x
10.0x
9.0x
Jul-19

Apr-20
Jun-19

Sep-19

May-20
Nov-19
Aug-19

Dec-19

Feb-20
Mar-20
Jan-20
Oct-19

Fwd PE Avg. +STD -STD

Source: Black Star Research, Bloomberg

6|Page
 Telecom Services Valuation comps
Exhibit 1
Calendarized Valuation Statistics
1
P/E (x) P/B (x) EV/EBITDA (x) EV/EBIT (x) Dividend Yield (%) Absolute Perf (%)
Security Rec. Crcy Price 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E 1m 3m 1yr
MTN GH BUY GHS 0.55 5.5x 4.4x 3.4x 2.1x 1.8x 1.6x 2.7x 2.3x 1.9x 3.4x 2.9x 2.5x 11.7% 14.9% 15.0% -3.8% -15.4% -23.0%
MTN GROUP N/A ZAR 5,562.00 9.3x 8.0x 7.2x 1.2x 1.2x 1.1x 3.1x 3.1x 2.9x 6.0x 5.7x 5.3x 9.5% 9.9% 11.5% -10.4% -21.2% -29.3%
MTN NIGERIA N/A NGN 117.50 10.1x 10.2x 8.8x 8.0x 5.1x 4.4x 4.5x 4.3x 4.0x 6.9x 6.5x 6.0x 7.2% 7.9% 9.1% 12.1% 53.5% -56.9%
AIRTEL AFRICA N/A NGN 298.90 8.7x 10.1x 8.5x 0.8x 0.8x 0.8x 4.0x 4.0x 3.7x 6.6x 6.0x 5.7x 5.3% 7.5% 8.8% 0.3% -1.3% -30.3%
VODACOM N/A ZAR 12,114.00 13.2x 12.5x 11.9x 2.6x 2.2x 2.2x 7.1x 6.8x 6.5x 10.1x 9.6x 8.7x 6.7% 7.1% 7.6% -2.2% 2.7% -17.7%
SAFARICOM PLC N/A KES 28.30 16.1x 15.2x 13.3x 8.1x 7.0x 6.2x 8.3x 7.9x 7.1x 10.6x 9.2x 8.4x 5.3% 6.1% 6.7% -2.4% 16.5% -1.0%
TELECOM EGYPT N/A EGP 12.93 5.5x 5.5x 5.0x 0.6x 0.6x 0.5x 4.9x 4.3x 3.9x 8.6x 7.5x 6.5x 3.6% 3.9% 4.1% 17.5% 22.0% -0.9%

Maximum 16.1x 15.2x 13.3x 8.1x 7.0x 6.2x 8.3x 7.9x 7.1x 10.6x 9.6x 8.7x 11.7% 14.9% 15.0% 17.5% 53.5% -0.9%
75th Percentile 11.6x 11.4x 10.3x 5.3x 3.7x 3.3x 6.0x 5.5x 5.3x 9.3x 8.4x 7.5x 8.4% 8.9% 10.3% 6.2% 19.3% -9.3%
Median 9.3x 10.1x 8.5x 2.1x 1.8x 1.6x 4.5x 4.3x 3.9x 6.9x 6.5x 6.0x 6.7% 7.5% 8.8% -2.2% 2.7% -23.0%
25th Percentile 7.1x 6.7x 6.1x 1.0x 1.0x 1.0x 3.6x 3.5x 3.3x 6.3x 5.9x 5.5x 5.3% 6.6% 7.2% -3.1% -8.3% -29.8%
Minimum 5.5x 4.4x 3.4x 0.6x 0.6x 0.5x 2.7x 2.3x 1.9x 3.4x 2.9x 2.5x 3.6% 3.9% 4.1% -10.4% -21.2% -56.9%

Source: Black Star Research, Bloomberg. NOTE: Non-covered companies are Bloomberg compiled consensus. 1Performance in USD

7|Page
Telecom services peer benchmarking

Chart 12: Total revenue growth vs. Peers Chart 13: EBIT margin vs. Peers

40.0% 50.0%
35.0% 45.0%
30.0% 40.0%
25.0% 35.0%
20.0% 30.0%
15.0% 25.0%
10.0% 20.0%
5.0% 15.0%
10.0%
0.0%
5.0%
-5.0%
0.0%
-10.0%
-15.0%

MTN GH MTN GROUP VODACOM TELECOM EGYPT MTN GH MTN GROUP VODACOM TELECOM EGYPT

Chart 14: ND/EBITDA vs. Peers Chart 15: Capex/revenue vs. Peers

3.00 x 35.0%
30.0%
2.00 x
25.0%
1.00 x
20.0%
0.00 x 15.0%

-1.00 x 10.0%
5.0%
-2.00 x

-3.00 x
MTN GH MTN Group VODACOM TELECOM EGYPT MTN GH MTN Group VODACOM

Chart 16: Return on capital employed (ROCE) vs. Peers Chart 17: Cash conversion vs. Peers (Op.cash flow/EBITDA)

50.0% 100.0%
40.0% 90.0%
30.0%
80.0%
20.0%
70.0%
10.0%
60.0%
0.0%
-10.0% 50.0%

-20.0%

MTN GH MTN Group VODACOM TELECOM EGYPT MTN GH MTN Group VODACOM

Source: Black Star Research

8|Page
Estimates vs. Consensus
While there are currently no consensus data available on MTNGH, our conservative assumptions still
imply significant upside to the shares. We therefore compare our estimates to historical performance.
On aggregate, we are largely in line with history and positive on margin increment which we
incorporate in our modelling, driven in part, by cost-cutting initiatives (see note on margin expansion
below).

Exhibit 2
Black Star Research Consensus
2020E 2021E 2022E 3yr avg 3yr est
Revenue 6,128.5 7,260.4 8,480.0 N/A
% Total 18.3% 18.5% 16.8% 23.2% 17.8%
EBITDA (reported) 3,132.5 3,693.7 4,375.5 N/A
Margin % 51.1% 50.9% 51.6% 42.9% 51.2%
EBIT (reported) 2,433.9 2,866.0 3,408.8 N/A
Margin % 39.7% 39.5% 40.2% 30.6% 39.8%
PBT (reported) 1,740.1 2,200.8 2,770.2 N/A
Net Income (reported) 1,219.3 1,549.0 1,958.9
% Total 21.0% 27.0% 26.5% 22.7% 24.8%
EPS (reported) 0.10 0.13 0.16 N/A
DPS 0.06 0.08 0.11

Source: Black Star Research

Financial targets and corporate strategy

Near-term targets
Revenue growth: MTNGH is targeting 13%-15% revenue growth. (Source: 2019 results presentation)

Margin: The company expects to continue improving its EBITDA margin (2019A: 50.8%) by implementing
cost-cutting initiatives (Source: 2019 results presentation)

Capex intensity: Improving post implementation of IFRS 16 (Source: 2019 results presentation)

Dividend policy: The company is targeting 60-80% of annual net income (source: 2019 results
presentation)

Strategic development
Data: i) Driving data as next wave of growth; ii) Elevating customer education on Flexi functionality and
increasing customer awareness of non-expiry of data bundles (Source: 2019 results presentation)

MoMo: MoMo 1RGS drive to ensure RGS growth in a sustained manner and building fintech ecosystem
(Source: 2019 results presentation)

Digital: Repositioning Digital to grow revenue and reduce churn (Source: 2019 results presentation)
1Revenue Generating Subscriber

9|Page
Risks to our investment case
Company-specific risks

Execution risk: In its 2019 results presentation, MTNGH noted that it was issued a fine by the National
Communications Authority (NCA) to the tune of GHS 110K. According to a press release from the NCA on
05 December 2019, this was in relation to MTNGH’s failure to comply with directives on network challenges.
Monitoring by the NCA indicated that the company began rolling out compensation and refunds to affected
subscribers (Source: NCA). While MTNGH has an extensive track record of providing uninterrupted services,
we see execution risk as a hurdle the company would need to overcome in order to stay ahead of the curve.

Regulatory risk: On 8th June 2020, the (NCA) in the exercise of its mandate under Section 20(13) of the
Electronic Communications Act, 2008, (Act 775) declared its intention to classify MTN GH as a Significant
Market Power (SMP). This has followed a growing market imbalance after MTN gained ~75% of total market
share in 2019 and ~70% market share in mobile data subscription in 1Q20. As part of ensuring a level-
playing field for all network operators, the NCA will ensure the following;

i) asymmetrical interconnect rate in favour of the disadvantaged operators, ii) setting of floor/ceiling pricing
on all minutes, data, SMS, Mobile Money, iii) review and approve all pricing by the SMP, iv) require SMP
not to have differential prices for on-net and off-net transactions, v) ensure SMP’s access to information
does not disadvantage any value-added service of non-SMP operators, and vi) require operators to present
implementation plans on National Roaming Services within the next 30-90 days for execution (Source:
National Communications Authority, 2020). While this remains a headwind to MTNGH’s market share, we
think that it will require significant time and investment for local peers to catch-up with MTNGH.

Market-related risks

Illiquidity: Given the demand/supply mismatch, the actions of few retail investors with relatively
insignificant holdings could negatively impact the stock from reaching its intrinsic value. While this perhaps
remains one of the biggest risks, we believe that now is the time for investors to take a position in the stock
given; a wide discount to peers and history; and strong fundamentals to propel an intrinsic value realization.

Currency risk: MTNGH is exposed to fluctuations in exchange rates. Currency risk is incurred on
transactions carried out by company entities in currencies other than their functional currency (currency
risk on operations), as well as on assets and liabilities denominated in foreign currencies other than MTN
GH’s reporting currency (i.e., GHS). A sharp depreciation in MTNGH’s reporting currency versus currencies
of regions it transacts business with could negatively impact earnings.

Competition risk: The telecom industry in Ghana is largely saturated and MTNGH faces competition in
generating new demand and growing its subscriber base. While barriers to entry exist in the form of higher
capital requirement, we think that existing competitors may adopt aggressive pricing strategies in order to
grow their subscriber base and attract new customers. This could negatively impact margins and/or market
share in our view.

Macro risk: MTNGH’s revenue growth has shown a relationship with GDP growth and other macro factors.
As such, the slump in economic activity leading to a slash in GDP growth forecast and a reduction in
consumer discretionary spending amid the covid-19 pandemic is likely to have an impact on MTNGH’s
growth.
1Anoperator with 40% or more market share in voice, data, SMS, and value-added services like Mobile Money is considered a Significant Market
Power.

10 | P a g e
 A leader in telecom services

In a competitive and saturated market, market share and density are key in driving profitability

The telecom industry is dominated by a few large players, while customers (retailers, corporates, etc) usually
rely on multiple service providers for service satisfaction. As a result, there is low switching cost among
customers.

Additionally, the high capital intensive nature (optical transmission equipment, routers, switches, servers, up-
to-date technology, etc.) and compliance cost for the industry (government regulation, licensing requirement
etc.), implies that market share and density are key to profitability.

Chart 18: MTNGH has gained ~730bps+ market share in voice service Chart 19: …and gained ~500bps+ market share in data service
Voice services market share % Data services market share %

60.0% 80.0%

50.0% 70.0%
60.0%
40.0%
50.0%
30.0% 40.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0% 0.0%
MTN Peers MTN Peers

2015 2019 2015 2019

Source: Black Star Research, National Communications Authority NOTE: Market share is Source: Black Star Research, National Communications Authority NOTE: Market share is based
based on voice subscription trends, local peers include Airtel Tigo, Vodafone, Glo Mobile, on data subscription trends, local peers include Airtel Tigo, Vodafone, Glo Mobile, and others.
and Expresso Data market share include 2G,3G and 4G

We estimate that MTNGH has grown its market share in Voice services by ~730bps+ (Chart 18), and Data by
~2500bps+ (Chart 19) over 5yrs more than any local peer who have had a declining market share within the
same period. This is largely attributable to effective market propositions and value-added services. According
to data from the Bank of Ghana, MTNGH recorded a staggering 98% share in mobile money transaction value
in 2019.

11 | P a g e
 MTNGH’s increasing market share has shown a strong relationship with profitability (chart 20,21)

MTNGH’s increasing market share is an indication the company is growing revenues faster than peers and this has
shown a strong relationship with profitability. We see innovative product launches including the recently launched
TurboNet, a super high speed 4G internet router to continue revolutionizing the high-speed home broadband
industry.

At its 2019 results, the company noted plans of elevating customer education on Flexi functionality and increasing
customer awareness of non-expiry of data bundles. In our view, the company’s continuous innovation will continue
to drive its market share, density and profitability while ensuring customer stickiness in an industry with low
switching cost.

Chart 20: Voice market share is correlated with profitability Chart 21: Data market share is also key in driving profitability
Voice market share vs profitability Data market share vs profitability

2,000 2,000
R² = 0.9086 R² = 0.9641
Operating profit GHSm

Operating profit GHSm

1,600 1,600

1,200 1,200

800 800

400 400

0 0
40.0% 45.0% 50.0% 55.0% 60.0% 40.0% 50.0% 60.0% 70.0% 80.0%
Market share % Market share %

Source: Black Star Research, National Communications Authority NOTE: Market Source: Black Star Research, National Communications Authority NOTE: Market share
share is based on voice subscription. Outliers may be excluded is based on data subscription. Outliers may be excluded

<
r-squared: proportion of the variance in dependent variable (EBIT) that is explained by the independent variable (market share)

12 | P a g e
MTNGH is finding ways to increase its subscriber growth in a saturated market

While the industry seems to be saturated, we think that MTNGH’s revenue growth has been driven, in
part, by the company’s ability to grow its customer base and add new subscribers. In our view, we see
the company’s increasing subscriber growth as vital in keeping up with technology trends and
innovation.

Chart 22: Peers lag MTN in subscriber growth in voice services Chart 23: …while also lagging in subscriber growth in data services
Voice services subscriber growth vs peers Voice services subscriber growth vs peers

15.0% 40.0%

10.0%
30.0%

5.0%
20.0%
0.0%
10.0%
-5.0%

0.0%
-10.0% MTN Peers
MTN Peers

Source: Black Star Research, National Communications Authority NOTE: local peers Source: Black Star Research, National Communications Authority NOTE: local
include Airtel Tigo, Vodafone, Glo Mobile, and Expresso, Outliers may be excluded peers include Airtel Tigo, Vodafone, Glo Mobile, and Expresso, Outliers may be excluded

At its 1Q20 results, MTNGH’s mobile money revenue grew strongly (up 30.4%) and benefited from an increase
in the number of active subscribers (2.1%+), higher transactional activity of person-to-person (P2P) and
growth in more advanced services such as retail merchant payments and international remittances.

13 | P a g e
Well positioned as a pacesetter and to capture growth given emerging trends

MTNGH’s balance sheet firepower could support further capex expansion

MTNGH has demonstrated its ability to be an industry pacesetter by; launching MTN mobile money in
2009 ahead of peers; launching GSM technology; and being first to commercially roll-out all the
generations of technologies— 2G, 3G, 4G LTE and 4G+.

In our view, we think that MTNGH has a balance sheet headroom to stay ahead of the curve despite a
looming regulatory headwind. MTNGH’s 2020E Net debt/EBITDA of 0.02x (Chart 24) (excl. IFRS 16) is in
line with its 5-year history.

Chart 24: ND/EBITDA (pre IFRS 16) Chart 25: Interest cover

3.00 x 20.00 x

2.50 x
16.00 x
2.00 x
12.00 x
1.50 x

1.00 x 8.00 x

0.50 x
0.01 x
0.10 x
0.02 x 0.02 x 0.02 x 0.02 x
0.01 x 0.02 x 4.00 x
0.00 x
0.00 x

Net Debt/EBITDA (pre IFRS 16) Financial covenant Interest cover Mininum covenant

Source: Black Star Research Source: Black Star Research

While the company runs a relatively conservative balance sheet, we see scope for higher leverage, in
particular, given a relatively lower interest rate environment caused by the covid-19 pandemic and a
dip in the company’s return on equity profile. (FY14A: 45% vs FY19A: 39%)

14 | P a g e
 If MTNGH were to re-leverage its balance sheet to 1.1x Net debt/EBITDA (in line with peers), we estimate it
would have ~GHS 3.5bn in balance sheet firepower (Exhibit 3) representing ~50% of the company’s market cap
for further network expansion initiatives. As at 2019, the company had invested in ~100 rural telephony sites
which we believe has contributed to its growth. In our view, we think there is an opportunity for MTNGH to
invest in 5G network ahead of local peers as its adoption gains momentum globally.

Exhibit 3
Debt capacity calculation (GHSm)
Debt Scenario
2020E Net Debt GHS 56.1
2020E EBITDA 3,132.5
2020E ND/EBITDA 0.02 x
Additional leverage capacity
2020E ND/EBITDA (peers) 1.1 x
2020E EBITDA 3,132.5
Total Debt capacity 3,538.1
Headroom GHS 3,482.0

Source: Black Star Research

…and the company is actively transforming its portfolio towards a sweeter mix

Data
<<M&Ais changing the global
opportunities couldindustry
be tech landscape
companiesand MTNGHhigh
delivering is actively transforming
speed networks, its portfolio
fintench to
companies
capture
etc. growth

MTNGH is actively transforming its portfolio towards data and while we see revenue from the traditional voice
services plateauing in the near-term, we believe that data will drive the next wave of growth given i) rapid penetration
rate in data usage; ii) expected growth in smartphone usage as the company launched a GHS 150 MTN branded
smartphone, and iii) expected growth in global data usage.

Portfolio mix is now moving towards data which we see as driving the next wave of growth

Chart 26: 2014 Chart 27: 2019

2% 2% 4%
4%
17%
19%

20% 59% 28% 45%

Voice Digital services Data MoMo Other Voice Data MoMo Other Digital services

Source: Black Star research, company report Source: Black Star research, company report

15 | P a g e
 MTN’s rapid data penetration has led to data revenue growing at ~64% p.a (~2.5x voice)

Growth in MTNGH’s data penetration is 6x that of local peers (Chart 28), which has led to MTNGH’s
data revenue growing at ~64% p.a (Chart 29) compared with voice at ~25% p.a. This has been
driven in part by data users growth (+1.7 million to 8.1 million active data users), growth in
smartphones (up 19% to 8.0 million smartphones), and data consumption growth (up 86% to
256,301 TB).

Chart 28: MTN’s data penetration is now ~6x that of peers Chart 29:…leading to 64% growth in data revenue p.a (voice: 25%)
Data penetration % Data revenue growth

80% 1,600
70% 1,400
60% 1,200
50% 1,000
40% 800
30% 600
20% 400
10% 200
0% -
MTN Peers 2014A 2015A 2016A 2017A 2018A 2019A

Data GHSm

Source: Black Star Research, National Communications Authority. NOTE: Source: Black Star Research, company report NOTE: Data is for MTNGH
Penetration is based on data subscription, local peers include Airtel Tigo, Vodafone,
Glo Mobile, and Expresso. Data is based on 2019

We see an increasing data penetration for MTNGH as management continuous to drive

smartphone usage growth with the launch of the GHS 150 MTN branded smartphone (one of the
most affordable on the market). Additionally, management expects to drive customer awareness
of non-expiry of data bundles which we see as driving customer stickiness. Given this, we estimate
data to contribute ~30% of revenue by 2020E (2019A: 28%) reaching ~40% of revenue by 2024E vs
voice at ~30% (2019A: 45%) (Chart 30).

Chart 30: ~44% 5yr est. CAGR in Data revenue will drive the next wave of growth
Segmental revenue growth %

100%

50%

0%
2018A 2019A 2020E 2021E 2022E 2023E 2024E

Voice Data MoMo Digital services Other

Source: Black Star Research

16 | P a g e
Data is changing the global industry landscape and MTNGH is well positioned to capture growth
Given an increasing reliance on smart devices and the advent of Internet of Things (IoT), the concept of data
and data allocation is gradually becoming a game changer within the global telecom industry and we think that
MTNGH is well positioned to capture growth as the company transforms its portfolio in line with emerging
global trends. Cisco expects over 70% of the global population to have mobile connectivity by 2023 and global
mobile devices to reach 1.4 billion by 2023 compared with 8.8 billion in 2018. Internet of things (IoT) is expected
to be the fastest growing device connections category, expanding by 19% CAGR to 14.7 billion connections by
2023 compared with 7% CAGR expansion in smartphone penetration over the same period.

Furthermore, Ericsson has forecasted global mobile data traffic to reach 160 exabytes per month by 2025,
expanding at a CAGR of ~27% from 2019 (Chart 31). 5G networks are projected to contribute ~45% of total
mobile data traffic with the highest growth expected to be experienced in the Middle East and Africa region.

Chart 31: Global mobile data traffic is projected to reach 160 exabytes per month by 2025
Global mobile data traffic (Exabytes per month)

180
160
140
120
100 5G
80
60
40
20 2G/3G/4G
0
2015 2017 2019 2021 2023 2025

Source: Black Star Research, Ericsson,2019

While huge opportunity to capture growth exist, main challenge could be capital allocation
While opportunity for telecom companies is huge as smart devices continue to surge across the globe, there is
also a rising need for continuous investment, in particular, as the transition from 4G to 5G gains momentum.
We see capital allocation as the major headwind as companies will need to upgrade their infrastructure and
keep their technologies up-to-date with emerging trends.

Despite this, we believe that MTNGH’s balance sheet headroom could support further capex expansion. Given
its track record of introducing pioneering products ahead of peers and active portfolio transformation towards
data, we believe it is well positioned to capture growth.

17 | P a g e
 Robust free cash flow generator

While continuing to invest in capex, MTNGH has consistently delivered incremental free cash flow since
2013 with 2019 recording the highest FCF on record: up by ~82% to ~GHS 718m according to our
estimates. Growth in capex over the last 5 years has averaged ~29% compared with ~39% average growth
in FCF over the same period (Chart 32). We believe this underlines the company’s earnings power, cost
and working capital management.

Chart 32: MTNGH is investing in capex and producing incremental free cash flow
FCF vs CapEx

2,000 100.0%
80.0%
1,500 60.0%
40.0%
1,000 20.0%
0.0%
500 -20.0%
-40.0%
0 -60.0%
2013A 2014A 2015A 2016A 2017A 2018A 2019A 2020E 2021E 2022E

Free cash flow GHSm CapEx GHSm FCF growth % (rhs)

Source: Black Star Research

Given this, we estimate both capex and FCF on incremental basis and expect a continuous and
robust FCF generation driven by cost and working capital management. We believe MTN’s cash
generation power can absorb significant capex investment and see a growth in earnings on the
horizon for the firm.

18 | P a g e
 Robust FCF generation is signaling the company is doing many things right
MTN’s incremental FCF generation is an indication the company is doing many things right
including; less reliance on credit sales; margin increment; and significant earnings quality.

Chart 33: MTN’s revenue is significantly less reliant on credit sales Chart 34: The company is growing revenue and reducing cost
Account receivable vs receivables/ revenue % Revenue vs opex/revenue %

1,500 21.0% 15,000 51.0%

16.0% 41.0%
1,000 10,000
31.0%
11.0%
500 21.0%
6.0% 5,000
11.0%
0 1.0% 0 1.0%

Account receivable GHS'000 Receivables/revenue % (rhs) Revenue GHSm Opex/revenue % (rhs)

Chart 35: …which is leading to high double-digit margin expansion Chart 36: …and maintaining earnings quality above 100%
Margin evolution % Earnings quality (%)

60.0% 4,000 250.0%

50.0% 200.0%
3,000
40.0%
150.0%
30.0% 2,000
100.0%
20.0%
1,000 50.0%
10.0%
0.0% 0 0.0%

EBITDA margin EBIT margin Pre-tax margin Net profit margin Net Income GHSm Operating cash flow GHSm
Earnings quality % (rhs)

Source: Black Star Research Source: Black Star Research

We have a positive outlook on MTNGH’s ability to deleverage driven in part by higher revenue growth,
declining cost and robust FCF generation. With strong earnings growth potential and efficient cost
management, we expect cash realization of ~120%+ between 2020 and 2022E. (Chart 36)

19 | P a g e
 We see free cash flow headroom as supportiing managements 60-80% target payout

Current share price implies significant upside potential in FCF headroom using various dividend
scenarios in line with management’s target. In our view, we expect FCF yield to exceed Div yield by
avg. of ~300bps, ~200bps, ~90bps between 2020E to 2022E under 60%, 65%, and 70% payout
scenarios respectively (Chart 37,38, 39). We believe this will be driven by continuous cost and
working capital management, margin expansion and earnings growth.

Chart 37: FCF headroom under 60% payout Chart 38:

40: FCF headroom under 65%
70% payout Chart 39: FCF headroom under 70% payout
Dividend yield vs FCF yield % Dividend
Div yieldyield vs FCF
vs FCF yield%
yield % Dividend yield vs FCF yield %

25.0% 25.0%
25.0% 25.0%
20.0% 20.0%
20.0% 20.0%
15.0% 15.0%
15.0% 15.0%
10.0% 10.0% 10.0%
10.0%
5.0% 5.0% 5.0%
5.0%
0.0% 0.0% 0.0%
0.0%
2020E 2021E 2022E 2020E 2021E 2022E 2020E 2021E 2022E
2020E 2021E 2022E
FCF yield Div yield FCF yield Div yield FCF yield Div yield
FCF yield Div yield

Source: Black Star Research Source: Black Star Research Source: Black Star Research
Source: Black Star Research estimates

We see this headroom as supporting potential dividend raise, share buyback and further
investments all of which can boost the stock price over the long-term. Given this, we believe
management’s 60-80% target payout is achievable. In our modelling, we assume a 65% payout for
2020E and 2021E as we believe management’s payout target will depend on earnings growth.

20 | P a g e
 UNPACKING OUR REVENUE ESTIMATES
Revenue growth for MTN has shown a strong relationship with economic activity while Data and MoMo services have shown a better and
strong relationship with Data subscriber growth and MoMo transaction value respectively. Below, we unpack our revenue estimates for
MTNGH compared with GDP growth and sector drivers. Telecom services tend to be late cycle on aggregate, with growth lagging economic
activity.

Exhibit 4: MTN segmental revenue growth vs GDP/growth drivers

Segmental revenue growth FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E Correlation 5yr avg 3yr avg
MTN GH
Voice revenue growth % 2.0% -0.7% 1.1% 12.1% 46.0% 19.2% 8.1% 3.9% 15.5% 25.8%
GDP growth % 0.6% 2.9% 5.6% 5.5% 6.8% 6.9% -1.2% 7.5% 64.4% 5.5% 6.4%
Multiplier x 3.2x -0.2x 0.2x 2.2x 6.7x 2.8x -6.7x 0.5x 2.3x 3.9x

Data revenue growth % 178.8% 62.8% 59.2% 43.4% -10.6% 32.6% 28.4% 38.6% 37.5% 21.8%
Data subscriber growth 64.2% 7.9% 18.4% NA NA 42.3% 50.5% 49.5% 68.6% 22.9% 42.3%
Multiplier x 2.8x 8.0x 3.2x NA NA 0.8x 0.6x 0.8x 4.0x 0.8x

MoMo revenue growth % 225.5% 198.2% 94.2% 72.3% 60.3% 28.2% 30.4% 25.4% 90.6% 53.6%
MoMo transaction value % 357.1% 192.4% 121.5% 98.5% 43.2% 50.0% 52.5% 50.8% 92.8% 101.1% 63.9%
Multiplier x 0.6x 1.0x 0.8x 0.7x 1.4x 0.6x 0.6x 0.5x 0.9x 0.9x

Digital services & other % -25.8% 19.3% 16.8% 13.7% 9.9% 34.2% 21.0% -1.5% 18.8% 19.3%
GDP growth % 0.6% 2.9% 5.6% 5.5% 6.8% 6.9% -1.2% 7.5% 77.1% 5.5% 6.4%
Multiplier x -41.7x 6.7x 3.0x 2.5x 1.5x 5.0x -17.5x -0.2x 3.7x 3.0x

GROUP 13.7% 16.2% 19.8% 23.5% 23.2% 22.8% 18.3% 18.5% 21.1% 23.2%
GDP growth % 0.6% 2.9% 5.6% 5.5% 6.8% 6.9% -1.2% 7.5% 94.6% 5.5% 6.4%
Multiplier x 22.2x 5.6x 3.5x 4.3x 3.4x 3.3x -15.2x 2.5x 4.0x 3.7x

Chart 40: Voice revenue growth vs. GDP Chart 41: Data revenue vs subscriber growth Chart 42: MoMo revenue vs transaction value

60.0% 8.0% 200.0% 80.0% 250.0% 80.0%

6.0% 200.0% 60.0%
40.0% 150.0%
60.0% 150.0%
4.0% 40.0%
20.0% 100.0% 100.0%
2.0% 40.0% 20.0%
50.0% 50.0%
0.0% 0.0% 0.0% 0.0%
FY14A
FY15A
FY16A
FY17A
FY18A
FY19A
FY20E
FY21E

20.0%
0.0%
FY14A
FY15A
FY16A
FY17A
FY18A
FY19A
FY20E
FY21E
-20.0% -2.0%
FY14A
FY15A
FY16A
FY17A
FY18A
FY19A
FY20E
FY21E

-50.0% 0.0%
MoMo revenue growth %
Voice revenue growth % Data revenue growth % MoMo transaction value % (rhs)
GDP growth % (rhs)
Data subsriber growth % (rhs)

Chart 43: 1Digital & other vs GDP

40.0% 8.0%

20.0% 6.0%
4.0%
0.0%
2.0%
FY14A
FY15A
FY16A
FY17A
FY18A
FY19A
FY20E
FY21E

-20.0% 0.0%
-40.0% -2.0%
Digital services & other %
GDP growth % (rhs)

Source: Black Star Research, National Communications Authority, Bank of Ghana. NOTE: Outliers may be excluded, 1revenue growth for digital and other services. MoMo transaction value is
based on the mobile money industry

21 | P a g e
 COMPANY OVERVIEW

MTN Ghana is the largest telecom services operator in Ghana by revenue and subscriber base. It offers voice,
data, mobile money and other digital services to retail and corporate customers across the country. The company
also offers enterprise solutions to corporate and public sector customers across the country. In 2019, it recorded
c. GHS 5bn in revenues of which ~45% is derived from voice services, ~28% from Data services, and ~19% from
Data while the balance is from other services. Despite the competitive nature of the industry, the company has
grown its market share more than any local peer over the last 5 years. MTN’s network coverage is extensive,
covering all 10 regional capitals, major cities and many rural and remote areas. The company continues to invest
heavily in infrastructure to expand its coverage and capacity across the country while maintaining a growing FCF.

Segmental overview

MTN Voice services

MTN GH provides voice services to retail and corporate clients across the country. In 2019, it grew it subscriber
base to 22.6 million (FY 13A: 12.9m) representing a 55.2% market share in voice services. We estimate that MTN
GH reached voice services penetration of ~74.7% in 2019 (FY 13A: 49.5%) compared with local peers at ~28%. This
has been driven in part by innovative product launches and rapid customer acquisition.

MTN Data services

MTN GH provides data services to retail and corporate clients across the country. In 2019, it grew it subscriber
base to 20.2 million (FY 13A: 4.8m) representing a 73.3% market share in data services. The company recorded a
data services penetration of ~73.7% by our estimates (FY 13A: 18.7%) compared with local peers at ~13%. The
company’s fastest internet service continues to drive customer stickiness.

MTN MoMo services

MTN GH launched Ghana’s first mobile money service ahead of its local peers, and has since grown its subscriber
base to ~15.1 million. In 2019, the company achieved a 98% share in total mobile money transaction share.

Other
Other services mainly comprise enterprise activities.

Chart 44: Revenue by service segment

Digital
services Other
4% 4%

MoMo Voice
19% 45%

Data
28%

Source: Black Star Research, company report. NOTE: Data is based on 2019

22 | P a g e
Key developments and priorities
Localization
In June 2016, the National Communications Authority (NCA) issued a provisional authorization to Scancom Plc
(MTNGH) to operate and provide mobile broadband services in the 800MHz band. The licence required
Scancom Plc to fulfil certain conditions including attaining a minimum 35% Ghanaian shareholding (the
‘Localization Requirement’). The initial public offering (IPO) was successfully completed with the listing on the
Ghana Stock Exchange on 5 September 2018.

Exhibit 4: key priorities for MTNGH

DIGITAL, WHOESALE &

VOICE DATA MOMO
ENTERPRISE

• Ultra-rural site roll-out • Extensive 4G coverage • Secure DEMI Licence under • Scale myMTN and Ayoba
• Customer Value • Service bundling the new Act • Digital self-care for Home
Management • 4G + (4G LTE Advanced • Rollout MoMo Business and customers
• Multi-product selling technology) Market Place • Scale Gaming and Video
• Distribution transformation • Ring-fence high value • Grow MoMo Merchant to partnership by leveraging
customers deepen digital payment local and international
• Dominate Home Broadband • Driving MoMo activations in content partnerships
market Key markets • Music & messaging build
• Grow Advance Services with • MoMo integration
focus on remittances, • Enterprise acceleration
savings & loans, insurance • Focus on SME &
• Rollout Apps for MoMo MNC/LE
customer, Agent & Merchant • Driving Fixed
• Leverage data to develop Broadband
banktech capabilities and penetration (Fibre &
portfolio TurboNet)
• Wholesale-exploring cross-
boarder opportunities

Source: 2019 results presentation

23 | P a g e
 Management & shareholders
CEO: Mr. Selorm Adadevoh

Prior to his appointment as the Chief Executive Officer of MTN GH in 2018, Selorm Adadevoh served as the
CEO of Digicel Group’s Haitian operation, Chief Commercial Officer and Head of Mobile Financial Services
(MFS) for Millicom (Tigo) Ghana. He has an extensive track record in telecommunications, including
supporting 3G deployments for major Telecom operators in the UK. Selorm also spearheaded the
transformation of the most successful Mobile Financial Services product in the Carribbean which was
featured by GSMA in the recently published 2017 State of the Industry Report on Mobile Money. Selorm’s
consulting experience has also seen him advice major FTSE 100 and Fortune 500 companies on critical
business issues in Europe, Latin America, USA and Africa. He has a Bachelor’s degree in Civil Engineering from
the Kwame Nkrumah University of Science and Technology, Ghana, and holds an MBA in Finance, Strategic
Management from the Wharton School.

Acting CFO: Mr. Kobina Sam Bentsi-Enchill

Mr. Kobina Sam Bentsi-Enchill was appointed as the acting CFO for MTN GH in February 2020. Mr. Bensti-
Enchill is currently the Senior Manager, Corporate Performance Management for MTN Ghana, and has over
eighteen (18) years of work experience in telecommunications. He holds a Bachelor’s degree in Commerce
from the University of Cape Coast, Ghana and is a Chartered Management Accountant of the Chartered
Institute of Management Accountants, UK (CIMA).

Chairman of the Board: Mr. Ishmael Yamson

Mr. Ishmael Yamson has been the Chairman of the Board since 2011. He has previously served as the
Chairman & Chief Executive Officer of Unilever (Ghana) Ltd., Chairman of Ghana Investment Promotion
Centre, President of Ghana National Chamber of Commerce & Industry, Director & Founding Member at
Cepa Ghana, Chairman of Standard Chartered Bank Ghana Ltd., and President of Ghana Employers
Association and Founding Director of Common Wealth Business Council. He holds a Bachelor’s degree in
Economics from the University of Ghana.

Chart 45: Top Shareholders Chart 46: Top Shareholders

MTNGH top shareholders. Free Float=10% MTNGH top country ownership

1.0% 1.6% 1.0% 0.7%

1.1%
1.6% 8.9%
2.0%

85.4% 90.3%

Investcom Consortium Zent International

Social Security & National Insurance Veda Investors Fund
Pictet Funds SA Others Other Ghana Switzerland United States
Source: Bloomberg Source: Bloomberg

24 | P a g e
 Financials

Exhibit 5: Summary financials

Summary financials FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
Income Statement Summary (GHSm)
Revenue GHS 1,993.4 GHS 2,315.7 GHS 2,773.2 GHS 3,423.6 GHS 4,218.8 GHS 5,181.8 GHS 6,128.5 GHS 7,260.4 GHS 8,480.0 GHS 9,670.7
EBITDA (adjusted) 825.3 936.2 1,149.3 1,376.5 1,591.1 2,633.9 3,136.0 3,697.2 4,379.0 4,954.5
EBIT (adjusted) 634.3 650.3 891.0 1,016.5 1,127.6 1,832.4 2,437.4 2,869.5 3,412.3 3,852.0
Tax (reported) (126.8) (161.1) (236.9) (212.4) (270.6) (363.2) (435.0) (550.2) (692.5) (807.7)
Net Profit (adjusted) 445.0 423.1 558.8 732.4 758.2 1,011.5 1,222.8 1,552.4 1,962.4 2,291.2

Basic EPS (adjusted) 0.07 0.09 0.11 0.14 0.17 0.20

Diluted EPS (adjusted) 0.07 0.09 0.10 0.13 0.16 0.19
DPS (GHp) 0.12 0.05 0.06 0.08 0.11 0.14
Effective tax rate (reported) % 24.9% 25.9% 28.9% 21.7% 25.1% 25.2% 25.0% 25.0% 25.0% 25.0%

Cash Flow Statement (GHSm)

Working capital change (170.9) (33.6) 51.9 (136.1) 4.3 (49.6) (46.5) (71.2) (62.0) (25.4)
Cash flow from operations 472.8 690.7 1,058.7 792.3 1,178.2 1,554.8 1,871.4 2,305.5 2,863.6 3,364.8
Free cash flow 147.3 181.8 195.4 279.4 394.8 718.3 901.8 1,124.1 1,487.2 1,797.8
FCF Per share (GHp) 0.04 0.06 0.07 0.09 0.12 0.15
Cash flow from investing (318.8) (508.8) (862.7) (512.8) (782.8) (836.3) (969.2) (1,181.0) (1,376.1) (1,566.6)
Cash flow from financing (226.1) (166.9) (331.6) (215.1) (185.7) (668.6) (855.6) (1,058.7) (1,409.6) (1,738.1)

Balance Sheet (GHSm)

Operating working capital (378.1) (291.1) (402.4) (408.7) (303.1) (253.5) (206.9) (135.8) (73.8) (48.4)
Net (debt)/cash (pre IFRS 16) (63.7) 3.7 7.4 140.4 32.3 46.7 56.1 57.5 60.3 97.0
Net (debt)/cash (IFRS 16) (63.7) 3.7 7.4 148.0 39.1 1,761.5 1,651.9 1,534.3 1,418.0 1,335.6
Total Assets 2,116.4 2,323.8 2,756.2 3,448.4 4,216.9 9,958.7 10,454.2 11,187.8 11,914.5 12,805.0
Total Liabilities 1,083.8 1,135.4 1,132.3 1,576.0 1,806.5 7,154.8 7,223.6 7,415.1 7,554.1 7,872.6
Book Value 1,032.6 1,188.4 1,623.9 1,872.4 2,410.4 2,803.8 3,230.6 3,772.7 4,360.4 4,932.3
Invested capital 1,010.0 1,111.9 1,692.9 2,260.8 2,657.0 4,479.3 4,740.4 5,097.7 5,488.4 5,881.2
Capital employed GHS 1,252.5 GHS 1,396.2 GHS 1,844.6 GHS 2,457.6 GHS 3,063.5 GHS 4,938.0 GHS 5,245.7 GHS 5,668.8 GHS 6,137.4 GHS 6,590.3

Source: Black Star Research

Exhibit 6: Key financial metrics

Growth Metrics FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
Total Revenue growth 13.7% 16.2% 19.8% 23.5% 23.2% 22.8% 18.3% 18.5% 16.8% 14.0%
EBIT (adjusted) growth 25.8% 2.5% 37.0% 14.1% 10.9% 62.5% 33.0% 17.7% 18.9% 12.9%
Net Profit (adjusted) growth 24.4% -4.9% 32.1% 31.1% 3.5% 33.4% 20.9% 27.0% 26.4% 16.8%
EPS (adjusted) growth 33.4% 10.7% 27.0% 26.4% 16.8%
Sustainable growth rate 17.6% 15.7% 25.2% 18.5% -29.4% 15.1% 14.2% 15.5% 14.5% 12.3%
Profitability Metrics FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
EBITDA (adjusted) margin 41.4% 40.4% 41.4% 40.2% 37.7% 50.8% 51.2% 50.9% 51.6% 51.2%
EBIT (adjusted) margin 31.8% 28.1% 32.1% 29.7% 26.7% 35.4% 39.8% 39.5% 40.2% 39.8%
NOPAT (adjusted) margin 23.9% 20.8% 22.8% 23.3% 20.0% 26.5% 29.8% 29.6% 30.2% 29.9%
Net profit (adjusted) margin 22.3% 18.3% 20.2% 21.4% 18.0% 19.5% 20.0% 21.4% 23.1% 23.7%
Return Metrics FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
ROE 45.4% 38.1% 39.7% 41.9% 35.4% 38.8% 40.5% 44.3% 48.3% 49.3%
ROA 22.4% 19.1% 22.0% 23.6% 19.8% 14.3% 12.0% 14.3% 17.0% 18.5%
ROCE 39.4% 36.4% 39.1% 37.0% 30.6% 34.3% 35.9% 39.4% 43.4% 45.4%
ROIC 50.5% 45.4% 45.2% 40.3% 34.4% 38.4% 39.7% 43.8% 48.4% 50.8%
ROE Du-Pont Analysis FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
Net profit margin 22.3% 18.3% 20.2% 21.4% 18.0% 19.5% 20.0% 21.4% 23.1% 23.7%
Asset turnover 1.00x 1.04x 1.09x 1.10x 1.10x 0.73x 0.60x 0.67x 0.73x 0.78x
Financial leverage 2.03x 2.00x 1.81x 1.77x 1.79x 2.72x 3.38x 3.09x 2.84x 2.66x
ROE 45.4% 38.1% 39.7% 41.9% 35.4% 38.8% 40.5% 44.3% 48.3% 49.3%
Credit ratios FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
Net debt/(cash)-pre IFRS 16 (63.7) 3.7 7.4 140.4 32.3 46.7 56.1 57.5 60.3 97.0
Net debt/EBITDA-pre IFRS 16 -0.09 x 0.00 x 0.01 x 0.10 x 0.02 x 0.02 x 0.02 x 0.02 x 0.01 x 0.02 x
Interest cover 3.67 x 6.11 x 10.86 x 18.90 x 13.17 x 5.69 x 4.09 x 4.95 x 5.99 x 6.88 x
(EBITDA-capEx)/interest expense 2.05 x 2.82 x 2.59 x 11.79 x 6.67 x 3.88 x 2.82 x 3.37 x 4.11 x 4.70 x
Net debt/Equity-pre IFRS 16 -6.2% 0.3% 0.5% 7.5% 1.3% 1.7% 1.7% 1.5% 1.4% 2.0%
Debt/Equity 17.3% 24.2% 9.8% 18.0% 18.2% 18.0% 17.4% 16.7% 16.3% 16.3%
Debt/Total capital 14.8% 19.5% 8.9% 15.3% 15.4% 15.3% 14.8% 14.3% 14.0% 14.0%
Op. Cash flow/EBITDA conversion 64.1% 73.2% 93.4% 58.1% 74.2% 59.1% 59.7% 62.4% 65.4% 68.0%

Source: Black Star Research

25 | P a g e
 Exhibit 7: Segmental summary
Segmental revenue GHSm FY14A FY15A FY16A FY17A FY18A FY19A FY20E FY21E FY22E FY23E
Voice 1,181.4 1,173.1 1,186.0 1,329.8 1,942.0 2,314.0 2,501.4 2,599.4 2,778.8 3,070.1
Data 331.6 539.9 859.3 1,232.0 1,102.0 1,461.0 1,876.1 2,599.4 3,353.7 3,837.6
MoMo 46.8 139.4 270.7 466.6 748.0 959.0 1,250.7 1,568.6 1,676.8 2,046.7
Digital services 402.7 421.9 399.9 309.4 295.0 199.0 250.1 268.9 383.3 409.3
Other 30.9 41.3 57.3 85.9 107.0 215.0 250.1 224.1 287.5 307.0
Other adjustments - - - (0.1) 24.8 33.8 0.0 0.0 0.0 0.0
Net revenue GHS 1,993.4 GHS 2,315.7 GHS 2,773.2 GHS 3,423.6 GHS 4,218.8 GHS 5,181.8 GHS 6,128.5 GHS 7,260.4 GHS 8,480.0 GHS 9,670.7
Check 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
% of Revenue
Voice 59% 51% 43% 39% 46% 45% 41% 36% 33% 32%
Data 17% 23% 31% 36% 26% 28% 31% 36% 40% 40%
MoMo 2% 6% 10% 14% 18% 19% 20% 22% 20% 21%
Digital services 20% 18% 14% 9% 7% 4% 4% 4% 5% 4%
Other 2% 2% 2% 3% 3% 4% 4% 3% 3% 3%
% of Revenue 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: Black Star Research. NOTE: We adjust segmental structure between 2013 and 2017 to reflect MTNGH's current reporting structure (i.e., Voice, Data, MoMo, Digital services)

26 | P a g e
 Price performance and trading history

Since inception, the highest traded volume in the shares of MTN GH amounts to ~GHS 40m (~3% of float) while averaging GHS 1m
traded volume over the same period. In 2019, average volume traded was ~GHS 886,065 translating into a price performance of ~-13%
despite recording revenue growth of ~ 23% (peers: ~12%), operating margin of ~40% (peers: ~24%), Return on capital employed (ROCE)
of 34% (peers: ~16%) and a growth in FCF by ~80%, according to our estimates.

Although activity in trading volumes has improved in 2020, there has also been a similar trend in investor reaction to the shares. Average
volume traded in 2020 amounts to ~GHS 2m translating into a YTD performance of ~-20% in the shares despite a strong 1Q20 results
(revenue growth: ~20% y/y, EBITDA margin: ~+550bps y/y, PAT growth: ~62% y/y) including significant earnings quality.

We think that investor reaction to the shares is dislocated from MTNGH’s fundamentals and hence unwarranted. In our view, the share
price reaction has been driven, in part, by profit-taking activities, and capital loss minimization.

Chart 47: Investor reaction to the shares has not been fundamentally driven
Price vs volume

45.00 1.00
40.00 0.90
Sell-off in shares despite strong
35.00
0.80
results announcement
30.00
25.00 0.70
20.00 0.60
15.00
0.50
10.00
5.00 0.40

0.00 0.30

Volume (GHSm) Price (GHS) (rhs)

Chart 48: Price performance vs GSE-CI Index

3,100.00 1.00
2,900.00 0.95
0.90
2,700.00
0.85
2,500.00 0.80
2,300.00 0.75
2,100.00 0.70
0.65
1,900.00
0.60
1,700.00 0.55
1,500.00 0.50

GSE-CI Index MTNGH (GHS) (rhs)

Source: Black Star Research, Bloomberg

27 | P a g e
Target price basis & risk
Our TP of GHS 0.90/sh is derived from a two-stage DCF model. Stage One (2020E-24E) reflects our near-term estimates, while Stage
Two (2025E-Terminal) assumes steady-state assumptions to terminal date. We assume a WACC of 22% (including a risk-free rate of
19.2%, equity risk premium of 10%) and terminal growth of 4.5%.

At our TP, MTNGH would trade at ~7.1x FY21E PE, which is ~30% discount to peers—unjustified, in our view, given higher returns and
significant ROCE upside potential than peers (see peer benchmarking on page 8).

Upside/(Downside) risks to our TP: i) greater (slower) than expected GDP growth, ii) higher (lower) than expected subscriber
growth leading to lower (higher) churn rate, iii) Sufficient capital discipline (a lack of capital discipline) leading greater deleveraging
(slow deleveraging), iv) Slower (faster) than expected loss of market share across segments, v) higher liquidity (illiquidity) leading to
efficient market (demand/supply mismatch), vi) better(worse) execution of network expansion initiatives.

Recommendation Structure
Black Star Research recommendation—scaled into Sell, Reduce, Hold, Accumulate and Buy, are founded on the forecasted absolute
returns on the stock within the next 12-months, which is equivalent to an upside/downside to the target price. The target price
represents our analyst’s expectation of the price level which the financial instrument is expected to trade at within the coming 12
months. Our ratings dispersion guidelines is shown in the table below;

Total return expectation within the next 12-months

Recommendation Sell Reduce Hold Accumulate Buy

Note: Ratings dispersion may vary from time to time where Black Star Research believes it better reflects the investment prospects of stocks in a coverage cluster.

Target price and update

Target prices may be based on a single or several valuation methodologies, e.g., the discounted cash flow (DCF) analysis, or applying
“fair” pricing multiple(s) based on historical valuation or peer pricing level. It is important to note that target price may not necessarily
be equivalent to the “fair value” of the financial instrument as some discount or premium factor may be incorporated due to a variety
of reasons which are dependent on the analyst’s view of what the price may be within the 12-months period. Black Star Research
works with a policy to continually update the recommendation subject to the following occurrences: the attainment of the target
price; the release of new accounting figures or the announcement of any significant news on the company or its industry/sector.

Covering Analyst: Michael Akpawu

E: michael.akpawu@blackstarbrokerage.com.gh
T: +233 (0) 205386369

Economics and Markets Analyst : Hannah Darkwah

E: hannah.darkwah@blackstarbrokerage.com.gh
T: +233 (0) 269011971

For more information and other research needs, contact:

research@blackstarbrokerage.com.gh
Tel: +233 (0) 302227698

Analyst Certification
Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1)
the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and
(2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views
expressed in this report.

28 | P a g e
Important Disclosures

This report is designed to be utilized by qualified institutional and professional investors only. Private investors must consult their investment adviser or broker for
professional advice before seeking to act on the contents of this report. This advice has been prepared without taking account of the objectives, financial situation or
needs of any particular investor. Investors should be aware that the firm may have an exposure to a covered issuer which may affect the objectivity of this report.
Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs.
Black Star Research reports are provided for informational purposes only. All information provided in this report is the intellectual property of Black Star Research, is
for the use of intended recipients only, and may not be reproduced in any form whatsoever without the express written consent of Black Star Research. Descriptions
are not intended to be complete and cannot be guaranteed to be accurate; therefore, Black Star Research does not assume any legal liability or responsibility for any
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or make any representation, statement or expression of opinion or warranty, express or implied, with respect to the accuracy or completeness of the information or
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material or otherwise, which would normally be expected to be included in this report. From time to time, research analysts conduct site visits of covered issuers. Black
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for information purposes only.

Except otherwise stated in the report, for the purpose of any recommendation in relation to: (i) an equity security, the price referenced is the publicly traded price of
the security as of close of business on the day prior to the date of the report or, if the report is published during intraday trading, the price referenced is indicative of
the traded price as of the date and time of the report; or (ii) a debt security, prices are indicative as of the date and time of the report and are from various sources
including Black Star Brokerage Trading desks. The completion date of the production of any recommendation in this report shall be the date of dissemination of this
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About Black Star Brokerage

We are a Premier Investment Banking and Securities firm serving sovereign, institutional and corporate clients. We offer bespoke solutions to public and private clients.
Whether for stake-building, hedging, yield enhancement, or disposal, we help our clients to manage their equity and debt stakes. The firm is owned and run by
individuals with extensive Wall Street and City of London experience.

Our financial advisory services are designed to create shareholder value by initiating and executing transactions as adviser for both private and public transactions. Our
services span across Capital fundraising, PPP/Project Finance, Innovative Financing Solutions, Disposals, Business modelling and strategic board advisory. We run a
thorough process on Mergers & Acquisitions of public and private companies by evaluating potential targets/investors, providing valuation analysis, and evaluating
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continue to benefit our clients.

Our Investment Banking & Capital Markets services originate, structure, and execute equity, equity-linked, and debt financings, including initial public offerings. This
means we offer clients access to financing in the private and public capital markets through the issuance of debt, equity, or hybrid securities. We approach each
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interests first and executing every transaction with efficiency, objectivity, and discretion.

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 Black Star Research Measures Definition

Exhibit 8
Business Performance Numerator Denominator
Return on Capital Employed NOPAT= EBIT*(1-Tax Rate) Total Assets - Current Liabilities
Return on Invested Capital NOPAT= EBIT*(1-Tax Rate) Total Assets- Current Liabilities-Cash
Return On Equity Net Income Shareholders' Equity
Operating Margin Operating Profit (EBIT) Sales
Earnings Growth Expected 5-Year CAGR from Latest Actual N/A
Free Cash Flow Cash Flow From Operations-Total Capex N/A

Quality of Earnings
Cash Realization Ratio Cash Flow From Operations Net Income
Asset Replacement Ratio CapEx Depreciation
Tax Rate Tax Charge Pre-Tax Income
Net Debt/Equity Ratio Net Debt= Total Debt - Cash & Cash Equivalent Total Equity
Interest Cover EBIT Interest Expense
(EBITDA-CapEx)/ Interest expense EBITDA-Total CapEx Interest Expense

Valuation Statistics
Price/Earnings Ratio Current Share Price Diluted Earnings Per Share (Basis As Specified)
Price/Book Value Current Share Price Shareholders' Equity/ Current Basic Shares
Dividend Yield Annualised Declared Cash Dividend Current Market Cap
Free Cash Flow Yield Cash Flow From Operations-Total CapEx Current Market Cap
Enterprise Value/Sales EV=Market Cap + Minority Equity Net Debt+ Sales
Other LT Liabilities
Enterprise Value/EBITDA Enterprise Value Basic EBIT + Depreciation + Amortization

Black Star Research Measures Definition is a set of standardized fundamental analysis practice which serve to ensure consistency across our research under business performance, quality of earnings and valuation. These set of
measures are consistently structured with guidelines on improving the performance measures in line with industry practice. Our measures definition is a real time research database sourced directly from our equity research
analysts’ earnings models and includes forecasted as well as historical data for income statements, balance sheets, and cash flow statements for companies covered by Black Star Research.

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