Airtel Africa PLC

Airtel Africa PLC (LON: AAF) provides telecommunications and mobile money services. It has presence in 14 countries across Africa.

Investment Rationale – SELL at GBX 94.79

• The rapidly spreading delta variant of the coronavirus has reintroduced restrictions in many regions, while the Sub-Saharan Africa is now experiencing a third wave of the pandemic. Moreover, vaccination levels remained low. Therefore, it can hurt the overstrained position of AAF’s stock price.
• The strengthening of US Dollar is escalating speculations for Federal Reserve to begin asset tapering sooner than expected, which can keep the market volatile in the short-term.
• From a technical standpoint, 14-day RSI (73.23) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.
• AAF’s stock price has yielded around 72% return in the past year, giving a lucrative opportunity to book profit.

Key Risks

• Since FY19, the current ratio and quick ratio have remained lower than the industry median of 0.77x and 0.67x, respectively. In such a scenario, inflationary pressure and subdued consumer spending can impact the financial condition of the Company.
• A slowdown in the growth of telecommunications and mobile money services could adversely affect the demand for communication sites and tower space.

Recent News

Funding: On 30 July 2021 AAF announced that Qatar Holding LLC will invest US$200 million in Airtel Mobile Commerce BV. The proceeds from the transaction will be used to reduce debt and investment in sales infrastructure.

Financial Highlight for the year ended 30 June 2021 (as on 29 July 2021)

 (Source: Company Website)

• During Q1 FY22, reported revenue jumped 30.7% year-on-year, as market trends were favourable compared to same quarter in the last year.
• Similarly, EBITDA grew 46.2% year-on-year on constant currency basis.
• The profit before tax was over double to US$142 million in Q1 FY22, mainly driven by higher operating profits and stable net finance costs.
• Increased penetration across mobile data and mobile money services grew the customer base by 8.4% year-on-year in Q1 FY22.

Share Price Chart

(Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion 

The stock seems overstretched given the market uncertainties, as past performance is no guide to future performance. The market sentiment is weak with increasing bets on sooner asset tapering expectations, while escalating infection rate of coronavirus can limit the Company’s growth trajectory. Therefore, it is prudent to book profit at the current levels and reinvest capital plus gains when short-term uncertainty fades away. The stock made a 52-week high and low of GBX 96.30 and GBX 54.60, respectively. 

Based on the exceptional notional gains, a third wave of the pandemic in Sub-Saharan Africa, overstretched technical stance, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Airtel Africa PLC at the current price of GBX 94.79 (as on 10 August 2021, 11:50 AM GMT). 

IG Design Group PLC

IG Design Group PLC (LON: IGR) is a FTSE AIM 100 Index listed Company, which designs, innovates, and manufactures products related to Gift Packaging, Craft & Creative Play, Celebrations, Stationery, and Gifting.

IGR confirmed that it would pay its final dividend of 5.75 pence per share on 14 October 2021, post its approval in the annual general meeting. The ex-dividend date is 9 September 2021.

Investment Rationale – SELL at GBX 547.00

• The increase in the number of shares due to the equity issuance pertinent to CSS acquisition reduced the adjusted earnings per share to 25.9 US cents in FY21 from 32.7 US cents in FY20.
• High worker absences and supply-chain bottlenecks have impacted the UK’s Purchasing Managers' Index in July 2021. Moreover, subdued private sector growth can derail the economic recovery and hamper the overstrained position of IGR’s stock price.
• The Group remained cautious about the ongoing impact of the Covid-19 pandemic since it has been significantly impacting raw material and freight pricing.
• From a technical standpoint, 14-day RSI (57.15) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• IGR’s stock price has merely generated ~5.78% of return in the past year, showing significant underperformance against the benchmark, FTSE AIM 100 index.

Key Risks

• The failure to achieve the desired synergies from CSS’ acquisition can impact the growth trajectory.
• Moreover, during the uncertain economic conditions, the Company needs to regularly evaluate the debtors and credit risk profiles of key customers. The Company is also exposed to market risks such as interest rates, equity prices, foreign exchange rates as these could affect income or the value of holdings of financial instruments.

Recent News

Board Change: On 5 July 2021, IGR appointed Stewart Gilliland and Clare Askem to the Board as Non-Executive Chairman Designate and Non-Executive Director, respectively.

Financial Highlight for the year ended 31 March 2021 (as on 15 June 2021)

(Source: Company Website)

• IGR reported robust performance in FY21 with profit growth. The revenue surged 40% year-on-year, reflecting support from the full year's trading of CSS since acquisition.
• During the year, the Company sold 100,000 SKUs, while it has generated around US$10 million of synergy from CSS acquisition in FY21.
• The cash generation remained robust, and it maintained zero average leverage, reflecting the strength of the balance sheet.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

The Covid-19 pandemic significantly impacted the Company business as manufacturing and distribution capabilities were closed. The resurgence in coronavirus cases with Delta variant is concerning the growth trajectory, as cost inflation can significantly impact the profitability.  Therefore, it is rational to book profit at the current levels and reinvest capital plus gains when short-term uncertainty fades away. The stock made a 52-week high and low of GBX 653.00 and GBX 390.00, respectively.

Based on the overstretched technical stance, rising input costs, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on IG Design Group PLC at the current price of GBX 547.00 (as on 10 August 2021, 9:38 AM GMT).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

*Dividend Yield may vary as per the stock price movement.

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