Airtel Africa, a prominent telecommunications company, in February 2024, announced its intention to initiate a share buyback program following the disclosure of a negative Basic EPS in its financial results for the first nine months of 2024.
Addressing the share buyback, Group CEO Olusegun Ogunsanya stated.
“In light of our consistent strong operating performance and given current leverage, the Board intends to launch a share buy-back programme of up to $100m, starting early March 2024 over a 12-month period.”
The share buyback program, which commenced in March 2024, is a two-phased initiative with a maximum expenditure of $100 million.
So far, the company said that as of May 9, 2024, it has repurchased a significant number of shares; a total of 13,804,297 ordinary shares at an average price of GBP100.46 per ordinary share.
Share buybacks, while influencing various aspects of a company such as EPS, cash flow, and valuation, can serve as a strategic tool to achieve essential objectives.
For Airtel Africa, repurchasing its own shares is an attractive use of its capital due to the increase in cash reserves, current leverage, strong operating cash generation, and strong long-term growth outlook.
Nonetheless, beneath this rationale seemingly lies the intent to counteract the trend of declining and negative earnings per share.
The company’s financial performance in 2024 has been marred by declining and negative EPS, a departure from its historical trend of consistent growth.
The company attributes this downward trajectory to substantial derivative and foreign exchange losses, stemming from the Naira devaluation.
While there was a slight improvement in EPS before exceptional items in Q4 2024, the challenge for Airtel Africa lies in navigating through exceptional items, particularly the substantial derivative and foreign exchange losses adversely affecting the bottom line.
These losses have also led to declines in both revenues and EBITDA, further highlighting the need for strategic mitigation measures.
Amidst these challenges, it is crucial for Airtel Africa to strengthen its strategies aimed at mitigating the derivative and foreign exchange losses. One such is continued investment in CAPEX to bolster revenues.
- In 2024, the company set a CAPEX guidance range of $800 million to $825 million, aiming to fuel growth and revenue generation. However, the company fell short of this guidance, with CAPEX amounting to $737 million, representing a 1.48% decrease.
The shortfall in CAPEX, compared to the company’s guidance range, can be attributed to impact of share buyback and highlights the potential impact of the share buyback program on cash reserves and future investment opportunities.
While share buybacks can enhance shareholder value in the short term, sustained growth requires sustained investment in infrastructure, technology, and innovation. Airtel Africa must strike a balance between returning capital to shareholders and retaining funds for strategic initiatives and operational needs to ensure long-term viability and success.
Airtel Africa’s share buyback strategy appears to be a proactive move aimed at enhancing shareholder value in the face of challenging market conditions.
However, it is imperative for the company to address underlying issues while maintaining a balanced approach to capital allocation.
This includes carefully managing the impact of the share buyback program on cash reserves and ensuring sufficient investment in growth initiatives and operational needs. By striking this balance, Airtel Africa can position itself for sustained growth and profitability in the long term.
