Airtel Africa PLC 

Airtel Africa PLC (LSE: AAF) is a FTSE 100 company specializing in telecommunications and mobile money services, with a strong footprint across the African continent. The company operates in 14 countries, primarily located in Central, East, and West Africa. Established in 2018, Airtel Africa is headquartered in London, United Kingdom. This report covers the key recommendation rationale, conclusion, and recommendation for the stock.

Key Recommendation Rationale – Sell at GBX 117.10

• Resistance near Current levels: AAF’s stock price has breached the Resistance (R1) which was stated in the previous report on 31 October 2024 therefore, there can be a possibility of a decline from resistance levels. Considering the market conditions and the price action, it is prudent to exit the stock.

• Currency Devaluation Impact: The company's financial performance has been significantly affected by currency devaluation, particularly in Nigeria. Reported currency revenue declined by 9.7% to USD 2.37 billion despite strong operational growth in constant currency terms. Similarly, reported EBITDA fell by 16.5%, reflecting the adverse translation effects. The currency devaluation also contributed to foreign exchange losses of USD 151 million, impacting profitability and eroding the financial gains from operational growth.
  

• Decline in EBITDA Margins: The EBITDA margin declined from 49.6% in H1'24 to 45.8% in H1'25, primarily due to increased fuel costs and the reduced contribution from Nigeria following the naira's devaluation. While there was sequential improvement in Q2’25, the overall margin pressure underscores challenges in maintaining cost efficiency amid rising operational expenses across key markets
  

• Profitability Under Pressure: Despite a profit after tax of USD 79 million, the company’s profitability remains under strain. Exceptional derivative and foreign exchange losses, coupled with lower EPS before exceptional items (4.9 cents, down from 7.0 cents in the prior period), highlight the financial vulnerabilities stemming from external economic factors. Basic EPS recovery to 0.8 cents remains subdued, indicating limited resilience against currency headwinds.
• Decline in Operating Free Cash Flow: Operating free cash flow declined by 22.2% to USD 771 million in H1'25 compared to the prior period. This reduction reflects the growing financial strain despite cost optimization measures and a decline in foreign currency debt. The drop in free cash flow highlights potential challenges in funding future growth and maintaining shareholder returns amid ongoing market pressures.

       Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

AAF is expected to trade at a discount since it faces challenges from currency devaluation, declining EBITDA margins, and reduced profitability due to foreign exchange losses. Increased leverage from lease renewals raises financial risks, while operating free cash flow dropped by 22.2%, limiting flexibility for growth. Despite operational progress, these factors underscore ongoing financial pressures and vulnerabilities in navigating macroeconomic uncertainties.

For conducting the valuation, the following peers have been considered: Vodafone Group PLC (LSE: VOD), Gamma Communications PLC (LSE: GAMA) and others.

Given its current trading levels, the recent rally in the share price, relative valuation, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the closing market price of GBX 117.10, as of 02 January 2025. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 02 January 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.