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Home Markets Financial Analysis

Airtel Africa: Do not doubt the hype

Idika Aja by Idika Aja
January 29, 2023
in Financial Analysis, Market Views, Spotlight
Airtel , Smartcash Payment Service Bank

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Investors will be hoping for an earnings’ ‘beat’ from Airtel Africa as it approaches its next earnings release on February 2, 2023, for its Q3 2023 ended December 31, 2022.   

The telco’s stock has been an investor delight for much of 2022 and there is very little reason for upbeat investors to see the share price hype fall.

But naysayers with a different vantage point are also right to feel pessimistic about the stock’s valuation which is currently priced at about N1600. Is it undervalued and just a fluke or is it rightly priced and an opportunity to buy? 

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Are the share price/Earnings reflective of its business value? Let us take a look at Airtel Africa’s outlook and value based on past trends, especially the most recent financial data to see if there are any catalysts for a price change.  

  • Airtel Africa’s share price over the past three years tracked significantly ahead of earnings; increasing by over 76%, from N298.90 in 2020 to N1,635 as of the close of trading on December 30, 2022.   
  • But this year, the share price has lost 1.53%.  This is probably, a reflection of volatility. Airtel Africa’s share price is quite volatile, based on its high beta.  This means the share price could potentially sink lower or rise higher in the future.

Conversely, its earnings per share have been growing but not as fast as its share price. 

  • Over the past 3 years, basic earnings per share CAGR stood at 17.71% per year. This means that earnings per share on average grew by about 18% from 10.3 cents in 2020 FY to 16.8 cents in 2022 FY. 
  • But in 2022 FY, EPS grew by about 87% year-on-year to 16.8 cents, partially due to a 0.11% decline in the weighted average number of shares to 3.754 billion shares as a result of a successful share buyback.
  • Also boosting the EPS growth in 2022 FY was a non-operating exceptional net gain of $92 million from the sale of telecommunication tower assets in the Group’s subsidiaries in Tanzania, Malawi, Madagascar, and Rwanda.
  • The sale of assets to buy back shares is sure, a good way of boosting earnings per share to create EPS/Multiple expansion and higher valuation.   

 However, it is apposite not to conclude that Airtel Africa’s growth in earnings per share was driven by share buyback and/or sale of assets.  We believe that the growth was driven by a viable competitive business model, with real revenue growth prospects, a good sustainability plan, and thus a reflection of Airtel Africa’s value. 

  • On Wednesday, January 4, 2023, shares of Airtel Africa hit an all-time high lifting Nigeria’s main stock index, after the mobile phone company said it will use proceeds to a tower sale to reduce debt and not for share buyback and in line with its consistency in reducing its debt and growing its EBITDA. 
  • The company’s net debt has gone down to $3.278 billion as of September 2022 from $3.530 billion as of March 2021.  

More recently, Airtel Africa reported the highest 6M revenue in recent years amounting to $1.388 billion in 6M 2023, representing a 12.90% growth. 

  • The financial statements show that profit after tax was $330 million in 6M 2023 representing a decline of 1.49% from $335 million a year earlier.
  • The decline in profit after tax was due to higher finance net cost of $358m, which includes foreign exchange and derivative losses of $184m, Nigerian Naira devaluation impact of $30m, CFA (Central African Franc) devaluation of $45m and the balance being devaluation in the Malawian Kwacha, Ugandan shilling & Kenyan shilling. 
  • Overall, they reported an EPS growth of 3.95% year-on-year to 7.90 cents in 6M 2023 compared to 7.60 cents a year earlier.

Is Airtel Africa still Cheap? Airtel Africa’s share price seems sensible at the moment based on its multiples compared to its peers and industry.  Airtel Africa’s price-to-earnings ratio of 8.4x is trading slightly below its industry peers’ ratio of 13.37x, which means if you buy Airtel Africa today, you would be paying a reasonable price for it. 

Can we expect growth from Airtel Africa? With the company’s focus on sustaining profitable growth from underpenetrated markets; mobile voice, data, and mobile money services, cost efficiencies, good management, and control of its debt profile, the company remains hugely attractive. 

  • Airtel Africa’s earnings over the next few years are expected to increase by 17%, indicating a highly optimistic future ahead.  This should lead to more robust cash flows, feeding into a higher share value.   

Follow us for Breaking News and Market Intelligence.
Idika Aja

Idika Aja

Idika is a Chartered Stockbroker with expertise in financial analysis, equity research, perspective analysis, and investment commentary.

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