Airtel Africa PLC (LON: AAF) – Delivering growth across voice, data, and mobile money.

Airtel Africa Plc is an FTSE 250 listed provider of telecommunication and mobile money services. The Company has a significant presence in Africa. AAF operates in 14 African countries, primarily in Central Africa, East Africa, and West Africa. AAF was founded in 2018 and is headquartered in London, the United Kingdom. The Company operates as a subsidiary of Airtel Africa Mauritius Limited. It provides diversified services in telecommunications such as wireless voice (both prepaid and post-paid), data communication services, fixed-line telephony, international roaming service, as well as mobile money services. In its mobile money services offerings, AAF provides international money transfer facilities, savings, payments, and microloans. In its data communication services offerings, the Company provides 2G, 3G, and 4G.

On 29 July 2021, AAF would announce its Q1 FY2022 results.

Recent trend of dividend payments

In FY2021, AAF would pay a total dividend of 4.00 cents per share. The next dividend of FY2021, 2.5 cents per share, would be paid on 23 July 2021 (final dividend). It had an ex-dividend date of 24 June 2021.

Growth Prospects

• Renewal of licenses: AAF has significant growth opportunities in its two largest markets: Nigeria and Uganda. Hence, the Company has renewed its licenses in those two countries.
• Network coverage and distribution expansion across voice offerings: The Company has increased its distribution and network coverage to expand its voice offerings. Already, in this respect, AAF achieved 6.9% customer base growth, 0.1% ARPU growth, and an 11.0% revenue increase across its voice offerings. AAF strives to increase its coverage in underserved rural areas for greater population coverage. It also wants to improve self-care capabilities and enhance its customer experience.
• Investments in 4G and fibre: AAF continues to invest in 4G and fibre in order to modernise its network. The Company wants to take advantage of rising smartphone penetration in Africa to drive strong growth in its data offerings and build a strong data brand. It also plans to build its wireless home broadband business.
• Increased distribution and product offerings across mobile money: The Company is expanding its distribution infrastructure to grow its mobile money business. This provides AAF a huge opportunity to provide payment services to the large unbanked population in Africa. The Company offers currency of choice for payment and additional services like bulk transfers, merchant payments, international money transfers, savings, micro-loans, bank-to-wallet/wallet-to-bank etc., to its customers. AAF promises to provide safety, ease, and convenience to customers for financial inclusion.
• Focus on ESG: AAF has a strong focus on ESG. It strives to limit its environmental impact and address environmental risks. The Company focuses on recycling across all its operations, reduction of waste, and reduction of GHG emissions. AAF has aligned itself with United Nation’s sustainable development goals. Hence, it could get a new license comparatively easily.

Key Risks 

• Increasingly competitive environment: AAF already faces aggressive competition from existing players in an increasingly competitive industry. Hence, a well-funded new player could put downward pressure on prices, which could adversely affect AAF’s margins.
• Inability to upgrade network: An inability to continuously upgrade the infrastructure and network could downgrade the Company’ competitive edge. Hence, AAF always needs to incur significant capital expenditure to remain competitive.
• Failure to develop adequate digital touchpoints: There are evolving customer needs in the market, which demand more digital touchpoints. Hence, failure to innovate and develop enough digital touchpoints could lead to loss of customers and market share.
• Political instability in Africa: Changing political conditions in Africa could impact consumer confidence and the future strategy of the Company.
• Cybersecurity: Heavy reliance over home telecoms amid remote working environments has increased the risk of cyber-attacks, while the supply chain environment is challenging.
  

Now we will analyse some key fundamental and shareholders statistics of Airtel Africa PLC.

Financial and Operational Highlights (for the year ended 31 March 2021 as of 12 May 2021)

(Source: LSE Website)

• Driven by increased penetration across mobile data and mobile money services, AAF’s customer base in FY2021 was up ~6.9% YoY.
• Supported by the increased customer base, AAF achieved revenue growth across all regions. Revenue from Francophone Africa rose ~10% YoY, Nigeria revenue surged ~21.9% YoY, and East Africa revenue was up ~23.5% YoY in FY2021.
• Similarly, revenue was up across key services in FY2021. Revenue from data grew ~31.2% YoY, voice revenue surged ~11.0% YoY, and revenue from mobile money rose ~35.5% YoY in FY2021.
• Due to this impressive performance, overall revenue in Q4 FY2021 increased by ~15.4% YoY, while FY2021 overall revenue surged ~14.2% YoY.
• It led to underlying EBITDA up ~18.3% YoY and operating profit surging ~24.2% YoY in FY2021.
• However, due to prior year exceptional items and a one-off derivative gain, basic EPS was down ~12.6% YoY in FY2021.
• The Company’s cash-accretive operations resulted in a free cash flow of USD 647 million, rising ~42.8% YoY in FY2021.

Financial Ratios (FY2021) 

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 19 July 2021, at 10:45 AM GMT, AAF’s shares were trading at GBX 79.45, down by 2.58% against the previous day’s closing price. Stock 52-week High and Low were GBX 96.30 and GBX 52.10, respectively.

On a daily chart, AAF's price is sustaining above 200-day EMA of about GBX 76.11, indicating the possibility of an upward movement. The 200-day SMA of about GBX 77.42 is also sustaining below the stock price. Hence, there could be an uptick in the stock price in the near term. The MACD line is trading above the centreline and forming a positive crossover with the signal line.

In the last year, AAF’s stock has delivered a decent positive return of ~37.29%. Also, it has outperformed the FTSE All-Share Telecommunications index with a return of around 26.12%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

AAF delivered a resilient performance in FY2021, with customer base rising ~6.9% YoY and revenue surging ~14.2% YoY. It has a fantastic track record of consistent double-digit growth over the last thirteen quarters. The management wants to make efficient capital investments to maintain a sustainable capital structure and return cash to the shareholders. Furthermore, the management expects to maintain a progressive dividend policy, which provides further confidence for FY2022. The Company could benefit from its renewal of licenses, network coverage, and distribution expansion across voice offerings, its investments in 4G and fibre, its increased distribution and product offerings across mobile money, and its focus on ESG going into FY2022. The management anticipates business fundamentals to continue to improve. The Board is confident that there is strong potential for continued revenue and profit growth.

Considering the renewal of licenses, the Company’s resilient performance, its positioning as a company with strong business fundamentals, its attractive growth prospects, and the valuation as done using the above method, we have given a “BUY” recommendation on Airtel Africa Plc at the current price of GBX 79.45 (as on 19 July 2021 at 10:45 AM GMT), with lower-double digit upside potential based on 13.27x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from REFINITIV

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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